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High-Grade Issuance Surge, Tsy Auctions Weighed on Rates

US TSYS
Markets returned from extended holiday weekend to carry-over weakness in rates Tuesday -- no significant economic data or market moving headlines, but pressured by surge in corporate issuance, four US Tsy bill auctions and $58B 3Y note auction.
Tsy auctions were anticipated, but the breadth and size of the corporate issuance spurred speculative selling to get ahead of rate lock hedging -- exacerbating the curve steepening sell-off.
  • Over $30B high-grade corporate issuance issued Tuesday from a mix of 21 corporations, banks and supra-sovereigns (multi-tranche Nestle ($5B) and TD Bank ($4.5B) leading). Midday rebound off lows stalled as rate locks came back on as size of Nestle and TD Bank made the rounds.
  • Tsys held weaker/off mid-morning lows after $58B 3Y note auction (91282CCX7) stops through: 0.447% high yield vs. 0.450% WI; 2.45x bid-to-cover steady w/5 auction avg. Indirect take-up remains strong at 56.67% vs. 55.41% last month, while direct bidder take-up climbs to new 1+ year high of 18.97%. Primary dealer take-up slips to 24.37% vs. Aug's 26.17% and well off 29.53% 5M average.
  • Aside from deal and Tsy auction hedging, there was decent rolling of Sep MAC Swap futures (>65k) to Dec on CME Block cross facility.
  • The 2-Yr yield is up 1.4bps at 0.2201%, 5-Yr is up 3.4bps at 0.8174%, 10-Yr is up 4.6bps at 1.3681%, and 30-Yr is up 4.1bps at 1.9833%.
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