Goldman: Auction Allotment Data Could Reflect Shifting Buyer Base

Goldman Sachs note that “weaker price performance in auctions has reinforced concerns about demand for Treasuries.”

• “However, we would not read too much into weakness in primary market performance; auction data are noisy, and by itself have not been a reliable indicator of end-user demand for duration.”
• “Unless the weakness is observed over multiple auctions, it likely corresponds to the positioning of bidders going into the auction.”
• “Although we have not found auction data to be predictive of yield behaviour in the secondary market (particularly outside of the auction day itself), they could be useful in other respects.”
• “Auction allotment data appear to confirm a shift in the buyer base that we have previously highlighted. The percent allotted to investment funds across auction maturities has grown from around 50% in 2017 to about 70% today.”
• “Of course, some of this growth could reflect previously indirect bidders participating directly in auctions or perhaps intermediary capacity constraints relative to growing issuance, but we note that other sources, such the flow of funds data, appear to confirm such a shift in end-user demand.”
• “These investors tend to be more price sensitive, which could imply greater volatility in both primary and secondary market performance if the economic outlook is uncertain.”