Analyzing Treasury Auction Results

Following An Introduction to Treasury Auctions and The Recent Treasury Auction Brouhaha, I have received several requests from readers on where to obtain the relevant auction data and how to calculate the yield, bid-to-cover ratio and percentage of indirect bidders. It would be nice if there were an archived table of all this information, but the table of results for recent Treasury Note auctions omits both the bid-to-cover ratio and percentage of indirect bidders.

As best as I can determine, anyone seeking to capture the history of auctions for a particular bond needs to do so manually. I will quickly walk through how this can be done. First, start by selecting a particular security in the Search by Security Type list at the page with the title Treasury Marketable Security Offering Announcement Press Releases. Selecting the 2-Year Notes will bring up a page with all the data grouped by calendar year. Clicking on 2009 brings you to 2009 Treasury Security Auction Press Releases: 2-Year Notes. On this page, each auction date has three rows associated with it: Announcement; Prelim. Noncomp. Results; and Auction Results.

By selecting the PDF version of the 9/22 auction results, I can pull up today’s auction data. The yield to focus on is the High Yield, which was 1.034% for today’s auction. At the very bottom left, the press release notes the bid-to-cover ratio of 3.23 and provides the source data for the numerator and denominator. Finally, the percentage of indirect bidders is not calculated in the press release, but can be easily computed by dividing the Indirect Bidder – Accepted number by the Total Competitive – Accepted number. Today, that translated into an indirect bidder percentage of 45.2%.

Of course the best way to analyze the numbers is to watch and see how the market reacts to the prices and yields not just for the bond in question, but across the entire yield curve. In evaluating bid-to-cover ratios and the percentage of indirect bidders, analysts tend to compare the current auction to the most recent auction of the same security and to an average of the past 10-12 auctions of that security.

For two superb blogs with a bond focus, I continue to recommend:

• Across the Curve
• Accrued Interest

[source: TreasuryDirect]

Comments

[Zahi:]

The 'indirect bidders' category, so often quoted as a sign of healthy foreign central bank appetite may not be all that it appears.

It may be coincidental that the percentage of indirect bidders has risen materially possibly at the same time that the Fed established swap lines with foreign central banks, under the guise that it was to provide USD liquidity overseas. It begs the question why would a shortage of USD develop when the market has been awash in them for so long.

In an era where markets (especially US ones) look to cannibalize future benefits in favor of immediate ones (e.g. sub-prime loans, teaser rates, interest only loans, allowing the capitalization of loan interest, cash for clunkers, stimulus for consumption as opposed to investment purposes, ...), the Fed is perhaps no different in looking to simply push the problem out to future generations (not too far forward as the desperation and hysteria appears to be grow exponentially by the day).

Might it be that the Fed is simply parking USD with foreign central banks under swap lines (which have to unwound at original FX rates at maturity), whereby the foreign bank uses these temporary dollars to buy auctioned treasuries under a repo agreement. That is, the treasuries are taken up on a temporary basis, only to have the Fed/Treasury forced to take them back at the termination date of the repo and swap, at the original price (inflated relative to where the dollar and yields are today). In the meantime, it can be fraudulently claimed that 'indirect bidders, a category that includes foreign central banks' have a seemingly insatiable appetite for US treasuries. It looks as though these bidders are none other than the Fed and Dept of Treasury itself. How does one reconcile the claim that foreign central banks continue to have an appetite for treasuries when officials from virtually all of these same banks are on record for repeatedly saying they are gravely concerned about the safety of their USD denominated investments in treasuries?

This could turn out to be the mother-of-all bubbles / fraud / ponzi bubbles scheme being perpetrated by the godfather himself, the Fed has simply put off the inevitable collapse of the USD for another day, which would appear likely to take place in the not too distant future. Gold and Equities may be foreshadowing this ensuing collapse with investors buying gold for obvious reasons for fear of inflation. Equities have been shown at times to be a reasonably good inflation hedge. No green shoots here; equity market will likely remain bid as investors look to equities as a possible refuge from the inevitable hyperinflation that a collapse of the USD will entail.

These treacherous conditions are the type of thing that revolutions are born from...

Sep 23 04:48 AM

[Mad Hedge F...:]

byt Reviewing the current political and monetary landscape, I would be remiss, irresponsible, even negligent, if I didn’t revisit one of my favorite ETF’s, the Proshares Ultra Short Treasury Trust (TBT). This is the 200% leveraged bet that long Treasury bonds, the world’s most overvalued asset, are going to go down. While the Fed is going to keep short rates low for the indefinite future, it has absolutely no direct control over long rates. The only political certainty we can count on it the continued exponential growth in the supply of government bonds of all maturities. Like all Ponzi schemes, their eventual collapse is just a matter of time. It’s simple a question of how many greater fools are out there (sorry China). Look at how they are trading now. We currently have the greatest liquidity driven market of all time, and the ten year is only eking out a 3.40% yield, pricing in near zero inflationary expectations. The average yield on this paper for the last ten years is 6.20%, a double from the current level. Get the yield back up to 5%, a distinct possibility in 2010, and that takes the TBT from the current $45 to $70. Sure we may get a sideways grind in yields for a few months, which will be expensive due to the mathematic idiosyncrasies of the 2X ETFS. But a security that is unchanged if I am wrong, and doubles if I am right is the kind of risk/reward ratio that I will take all day. And I believe that in my lifetime Treasuries may lose their vaunted triple “A” rating and be priced closer to subprime (warning: I am old). That could enable the TBT to deliver the holy grail of trades, your proverbial ten bagger.

Sep 23 02:10 PM

[John Jansen:]

In re indirect bidding:

acrossthecurve.com/?p=...

Sep 24 12:55 PM