We're still very wary of adding new positions but here's a fun play we can make to generate a bit of income while we wait for the market to calm down - Phil
Here’s the analysis of today’s 10-year note auction and the outlook for tomorrow’s 30-year auction based on available data:
Today’s 10-Year Auction (March 12, 2025)
Reported Results:
- High Yield: 4.31% (down from February’s 4.632%)
- Bid-to-Cover Ratio: 2.92x (improved from prior re-openings)
- Tail: 0.5bps (tighter than expected, indicating strong demand)
Key Observations:
- The auction showed robust demand, stopping through the “when-issued” yield by 1.7bps.
- Market Reaction: Yields edged lower post-auction, signaling investor confidence in U.S. debt despite tariff uncertainties.
- Comparison: Improved vs. February’s 4.632% yield and 2.5x bid-to-cover ratio.
Tomorrow’s 30-Year Auction (March 13, 2025)
Context:
- Previous 30Y Auction (Feb 13): Yield of 4.748% with a bid-to-cover ratio of 2.3x.
- Current 30Y Yield: 4.63% (as of March 12, per Trading Economics).
Outlook:
- Demand Concerns: Recent 30Y auctions have struggled with weak demand (e.g., February’s 2.3x bid-to-cover ratio).
- Tariff Impact: Investors may demand higher yields amid fears of inflation resurgence from Trump’s April tariffs.
- Technical Factors: The Treasury plans to maintain 30Y auction sizes at $25B, testing market absorption capacity.
Forecast:
- Yield: Likely between 4.70%-4.80% (higher than current market yield of 4.63%).
- Bid-to-Cover: Expected 2.2x-2.4x, reflecting cautious participation.
Key Drivers
- Fed Policy: Rate cut odds (~45% for May) may temper long-term yield spikes.
- Tariff Risks: Markets fear tariffs could add +0.5% to CPI by Q3, pressuring long bonds.
- Global Demand: Foreign buyers (e.g., Japan, China) remain critical; weaker dollar could attract bids.
Strategic Implications
- 10Y Success: Today’s solid auction suggests short-term relief, but tariffs loom.
