Seven Year Note Auction

July 30th, 2015 9:56 am | by John Jansen |

Via Ian Lyngen at CRT Capital:

We’re cautiously optimistic about the prospects for this afternoon’s 7-year auction and anticipate a solid reception. The market is a bit stronger this morning, although not pricing in a concession, and in the wake of strong demand for 2s and 5s we’re anticipating similar interest in 7s.  Moreover, foreign demand has been a key driver for Treasuries as an asset class vs. lower-yielding European sovereigns and the liquidity provided by the auction could prove enticing – foreigners average 20% of new 7-years.  Cash volumes in the sector have been mixed for an auction day, taking 101% of average but with just a 9% marketshare vs. 11% norm.

* 7-year auctions have recently met strong receptions with all three of the most recent auctions stopping-through an average of 0.5 bp.

* Indirect bidding has been steady at 7s, taking 54% at the last four auctions.  Direct bidding has increased slightly over the same period, taking 12% of the last four auctions vs. 11% at the prior four.

* Investment fund buying has decreased to 43% of the last four auctions vs. 45% of the prior four.  In outright terms, that is $12.6 bn vs. $12.9 bn prior.

* Foreign investors as a % of the auction have increased recently, taking 20% of the last four auctions vs. 17% at the prior four.  In outright terms, that’s $5.8 bn over the last four auctions vs. $5.0 bn during the prior four.

* Technicals are negative for the 7-year sector with momentum nearly crossed in favor of higher yields. Initial support is the 2.072% 40-day moving-average before a modest volumes bulge at 2.10%.  Break that and we’ll look to an opening gap at 2.154% to 2.159% before the yield peak of 2.171%. For resistance there is an unfilled gap from overnight at 2.011% to 2.016% before the recent low of 1.941% and the 200-day MA at 1.897%.

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