Looking to the Futures
Strong 10-Year Note Auction Eases Yield Concerns
Treasury auction results have come in strong so far this week, as 10-year yields fall from 24-year highs. The 10-year Treasury yield is considered the global benchmark for long-term borrowing costs and is often considered as the risk-free rate.
Wednesday's 10-year auction sold $39.926 billion including $926.3 million allocated to SOMA (System Open Market Account) which is the portfolio of securities owned by the Federal Reserve.
Of the total, indirect bidders received roughly 80% of the competitive awards, about $31.06 billion of the $38.67 billion accepted. Because this group often includes foreign central banks and institutional investors, its strong participation is generally viewed as a sign of solid demand.
The elevated bid-to-cover ratio provided another sign of strong demand. While the ratio of total bids to the amount offered typically ranges from 2.4x to 2.6x, Wednesday's auction came in higher than average at 2.77x, essentially meaning there was $2.77 of bids for every $1 of debt offered.
This is the second of three auctions scheduled for this week. $22 billion of the 30-year bonds are set to be offered on Thursday. While strong results came from Tuesday's auction with $58 billion of the 3-year notes being sold.
Ultra 10-year Treasury Note futures rebounded from a low of 104'140 after Wednesday's solid auction results.
Technicals
Today we have a monthly chart of CBOE's 10-year interest rate symbol TXN:CGI going all the way back to March of 1997, with a price line set to this month's candle's high of 53.64. This allows us to look back to the year 2002 where we first dipped below this level. Yields came close in 2006 and 2007 to reach the price line but have remained suppressed for the past 19 years. Last month had a large increase as well, opening at 47.88 and closing at 52.93. This move up allowed the candles to separate from the moving averages, with the 50-period SMA coming in at 42.12, and the 200-period coming in at 26.76. RSI is just under the 70-line at 69.3362.
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