Extremely Weak 10-year Auction This Morning

Today’s auction of the on-the-run 2.25% May-35 SGB 1066 was notably weak, with National Debt Office (NDO) unable to sell the SEK2.5bln on offer.

• Total bids were SEK2.15bln, meaning the bid-to-offer ratio was just 0.86x. As a result, the NDO elected to allocate SEK1.6bln to institutional investors (implying a bid-to-cover of 1.34x).
• The 1066 line was first issued on Jan 31, and has seen healthy bid-to-covers of 3.15x, 2.14x and 3.70x in the three conventional auctions before today.
• As a result, the spread of the 1066 SGB against the on-the-run 10-year Bund widened almost 1bp in the 20 minutes following the result and is now around 3.5bps wider on the day at -23bps.
• Looking at conventional auctions of SGBs with maturities of between 9.5 and 11.5 years since 1996, there have only been four auctions (out of 331) before today where the offer amount was not covered (two in 2009, one in 2010 and one in 2014). Today’s 0.86x bid-to-offer was weaker than each of those four.
• We will keep a closer eye on future auctions from the NDO (and the Riksbank) in the coming weeks to gauge whether today’s result was an anomaly, or a signal of a more persistent weakening of demand for Swedish debt issuance.