Monthly 10 Year Auction: Some Thoughts

April 21st, 2014 9:46 am | by John Jansen |

I guess the Treasury is thinking about scrapping the current auction cycle process for 10 year notes in which a new issue is offered in February, May,August and November and then reopened in the two succeeding months. I guess my opening sentence and the verb “scrapping” overstates the process but suffice to say that the Treasury is asking dealers for comments on that idea. Here is a Bloomberg article which discusses the  idea.

Via Bloomberg:

RATES: Monthly 10Y New Issues May Make Sense, Wrightson Says
2014-04-21 12:15:00.0 GMT

By Elizabeth Stanton
April 21 (Bloomberg) — Existing auction pattern for 30Y
should be maintained, Wrightson ICAP Money Market Observer says
in today’s edition; primary dealers were asked if Treasury
should offer new 10Y and 30Y monthly, as opposed to scheduled
reopenings.
* Current auction schedule concentrates future interest and
principal payments, not a problem thus far as coupon levels
remain low
* As time goes on, current schedule “would produce an
extremely uneven pattern of debt service payments,”
concentrated on Feb. 15
* Monthly offerings of 30Y would increase risk of squeezes and
“greatly reduce the liquidity of the STRIPS market”
* For 10Y, monthly new issues “might increase the volume of
trading,” yet “would probably reduce the volume of term
financing activity in 10Y specials”
* Repo market also would be less prone to specials squeezes
* Treasury “should move very cautiously” because new
regulatory framework is expected to incraese cost of
securities lending
* To avoid excessive concentration of future debt service
payments, Treasury could shift maturity date of quarterly
10Y from mid-quarter
* Moving 10Y maturity to mid-Jan. and mid-July would line up
with 10Y TIPS, facilitating breakeven trading

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