Unexpectedly Strong Demand For Record Big 30Y Auction

With upsized 3 and 10 Year Treasury auctions pricing earlier this week at stronger internals than the bears had anticipated, moments ago the US Treasury sold a similarly upsized $17BN in 30Y paper - the largest long-bond auction on record - and yet the market had virtually no problem digesting the added supply, which in light of today's disappointing CPI print is probably not very surprising.

The 30Y stopped at a high yield of 3.130%, stopping through the 3.138% When Issued by 0.8bps; it was the third consecutive 30Y "stopping through" auction in a row, and 7 of the past 8. It was above last month's 3.044% and was the highest yield since March 2017, when the 30Y priced at 3.17%.

The internals were solid, with the Bid to Cover of 2.38 above the 2.27 average from the past 3 refundings, if modestly below the 6 month average of 2.42, and under last month's 2.41. Indirects were awarded 62.7%, better than both last month's 61.0% and the 6 month average 62.5%. Directs took down 8.3%, a steep drop from last month's 14.6%, and below the recent average of 10.0%. This left Dealers holding 28.9% of the allotment, modestly above 24.4% in April and above the 6MMA of 27.4%.

And so, with $73BN in gross issuance pricing this week ($31BN in 3Y; $25BN in 10Y, and $17BN in 30Y), after $33.9BN in paper matured, there was a net $39.1BN increase in coupon debt; what is surprising is how easily all of this debt was digested, resulting in a solid bid under the entire TSY curve in kneejerk response.

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