Treasury Auction Results

US Treasuries – Reading Auction Results

US Treasury auction results are an important short term driver of the US Fixed Income market since they provides insights on real demand for underlying securities. Strong auctions are good for sentiment and could indicate real buying to come into the market if any institutions missed out on buying in the auction because they didn’t bid high enough.

Note: If you are interested in European or UK bond auctions, please check our Reading Government Bond Auctions recap – analysis and terminology is a bit different.

Was the auction result good, bad or just ok?

To determine if the results of the auction are good, bad or just ok we need to analyse the results against the expectations for that auction and previous auctions for Treasuries of the same term. Many traders look first for bid to cover data (probably wrongly in most cases). In general we think the order of importance is (1) high yield, (2) bidder allocations and (3) bid to cover data (discussed in detail below).

The US Treasury provides a lot of information with the results of each auction but most of it is not needed for a quick analysis of the strength of the auction. Below is a screenshot (annotated and trimmed at the purple lines) of the official results for the 10y auction on 8 th February 2017, highlighting the key elements we look for. However, in this raw form the data still isn’t very useful – we need comparison points from prior auctions. InTouch Fixed Income provide these details with coverage of each auction.

After the auction results, the 10y future (TY) sold of quickly as the pricing was soft (tailed by 1.7bp), bid to cover was soft and bidder allocation data was mixed (indirects good, directs soft).

10y futures sell off post auction on soft pricing and covers

Looking at each factor in more detail:

1. Bid to Cover

Bid to cover is the ratio of the amount of bids in the auction vs the amount of bonds sold. The higher the cover is, generally the better the auction. To put the result in context, traders compare the cover for an auction against covers in previous auctions in bonds of the same term. Some compare the cover to the average from the last 3 or 4 auctions. If it’s higher, that would indicate a strong auction while lower would indicate a weaker auction.

2. High Yield – Trade Through / Tail

Probably the single most important indicator of whether the auction was strong or weak. The yield at which a Treasury auctions clears is a much more reliable indicator of how strong or weak the auction was as it can’t be manipulated like the bid to cover data.

Traders look at whether bidders in the auction bought at a yield higher or lower than the prevailing When Issued market yield. I.e. The difference between the auction high yield and the When Issued yield of that bond just before the auction bidding deadline (the “snap price”).

If the auction high yield is below the snap, it “traded through” the When Issued. If the auction high yield is above the snap, it “tailed” the When issued. If the auction high yield is innline with the When Issued, it “stopped on the screws”. In general, an auction that traded through by a significant margin is seen as positive. An auction that tailed by a lot is negative.

However, it’s important to put this in context. Traders need to compare how much an auction trades through by, or tails, against previous auctions of the same term. Ie auctions that trade through by more than prior auctions are stronger.

Having access to accurate, comprehensive data is very important to make these comparisons. InTouch Fixed Income has a multi-year database covering all US Treasury issuance which we leverage in analyzing auctions for our clients.

When Issued Market Price

Checking how the When Issued market has performed in the run up to the auction deadline gives more context.

If the When Issued was weak into the bidding deadline (yields rising) then dealers have built in a good concession and a trade through and higher covers may be expected. Conversely, a tail or lower covers would indicate that even the higher yield on the bond has not attracted buyers in the auction and suggests a particularly weak auction.

If the When Issued was strong into the bidding deadline (yields falling – ie no concession) then even a moderate trade through could be seen as very positive as buyers were willing to accept yields even lower than the already low market yield.

3. Breakdown of the Buyers

The US Treasury includes a partial breakdown of who bought bonds in the auction, split into three categories. Traders look at this information to get a feel for whether real demand or dealer demand was the main driver in the auction. The official results page present the data in dollar amounts but for quick interpretation it’s easier to look at it as a percentage of the total – most newswires will do this for you.

10y futures rally post auction on higher allocations to indirect bidders

Here we see the reaction to the 7y auction on 26 th January 2017. The TY (10y Future) had been sideways all day up to the auction at 1pm (circled). The results showed the bid to cover was just ok or slightly soft (2.45 vs 2.54 and 2.68 in prior two auctions) and the high yield was also just ok (stopped on the screws). Despite this average data the futures rallied to new highs on the day because traders focused on the indirect bidders – well above previous at 72.8%, vs the prior 64%.

Direct Bidders – any non-primary dealer financial institution bidding directly on the auction (not via an intermediary) for bonds that will be held on their own account. Requires access to TAAPS (application / terminal providing direct access to the auction). This can include pension funds, hedge funds, insurers, banks, governments and individuals. Direct bidding is an indicator of real money demand and thus higher percentage allocation is taken as a positive.

Primary Dealers – primary dealers bidding for their own account. A higher percentage allocation to primary dealers can be seen as a negative as it indicates reduced demand from foreign and domestic real money, requiring the primary dealers to backstop the auction.

Bottom Line

A rough rule of thumb to judge how strong an auction was, is to assess (1) high yield relative to the When Issued (2) bidder allocations and (3) bid to cover data, in that order of importance, and comparing each one to prior auctions in the same term. The market sometimes changes which metric it is most focused on but that is a good rough guide.

Authors: Michael Colman, Robin Belec

How Auctions Work

Four times a year, the Department of the Treasury holds a press conference to discusses Treasury marketable security auctions. This usually happens on the first Wednesday in February, May, August, and November. At each of these press conferences, Treasury usually gives the tentative auction schedule for the next six months.

During a press conference, Treasury may also announce other decisions relating to the auction schedule or Treasury marketable securities in general. The Treasury Department’s website has information on the quarterly press conferences.

Participate in Auctions with TAAPS

TAAPS is an application for the exclusive use of institutions that provides direct access to U.S. Treasury auctions.

We hold the auction

At the auction, Treasury first accepts all the non-competitive bids that comply with the auction rules.

Then, we accept competitive bids based on their rate, yield, or discount margin (from lowest to highest) until the entire amount of the offering has been awarded.

All successful bidders get the same rate, yield, or discount margin as the highest accepted bid.

If you bid through your TreasuryDirect account, you can see the results of your bid after 5 PM Eastern time on auction day. In your TreasuryDirect account, select Current Holdings, Pending Purchases and Reinvestments, select the pending security you wish to view, and then Submit. The price you see is for each $100 of your bid.

For a more general view of the auction results, you can:

• Sign up to get results by email
• See the auction results on this website
• Look in newspapers that include our auction results

Check to see if your new securities will accrue interest before we issue them. That may affect how much money you must have in your account before the issue date.

You bid for the amount you want

Who may bid?

All auctions are open to the public.

Institutional investors may have a TAAPS account that lets them bid directly, saving the cost and effort of an intermediary. Learn more about TAAPS.

Other investors may bid either through a TreasuryDirect account or through a bank, broker, or dealer. (Exception: Bids for Cash Management Bills must be through a bank, broker, or dealer.)

Individuals as well as several types of entities (such as corporations, estates, partnerships, and trusts) may have a TreasuryDirect account.

Banks, brokers, and dealers work through the Commercial Book-Entry System.

For more details about who may bid, check our Who may bid? Questions and Answers.

How do I bid?

Bids can be non-competitive or competitive.

Non-competitive Bidding

Maximum: $10 million per auction. You agree to accept the rate, yield, or discount margin determined at the auction. If you are using your TreasuryDirect account, you must bid non-competitively.

Competitive Bidding

Maximum: 35% of the offering amount. You specify the rate, yield, or discount margin that you will accept. To bid competitively, you must use a bank, broker, or dealer — or your TAAPS account.

Always pay attention to the closing times for bids.

We issue the securities

The auction date and the issue date are often a few days or even a few weeks apart.

On the issue date that was in the auction announcement, you get your awarded securities this way:

If you bid through	This is what happens with your new securities
your TreasuryDirect account	the securities go into your account
a bank, broker, or dealer	the bank, broker, or dealer gets the securities for you
your TAAPS account	you get the securities directly

When we issue the securities, we take the money to pay for them from the account you have designated for this purpose.

You then own the securities. You may keep them until they reach the end of their term (mature), or you may sell or transfer them before that time.

For more about each type of security, including when it matures, how it earns interest, and more, see the page about that type of security: Bills, Notes, Bonds, TIPS, and FRNs.