US TSYS/SUPPLY: Preview 10Y Note Auction: Re-Cheapening, Re-Steepening

Treasury will auction $39B in 10Y Note (reopen, CUSIP: 91282CLW9) at 1300ET Wednesday.

• 10Y yields have pulled back significantly since the last auction, with the current when-issued of 4.243% comparing to the November refunding's 4.347% high yield hit on Election Day. Today's highly-anticipated CPI report initially pared the available concession, with WI yields dipping below 4.20% as December Fed cut pricing was bolstered by the major inflation categories coming largely in-line with expectations.
• However that move has faded in the hours since the release, with long-end yields bouncing back from intraday lows as we approach the auction.
• Relative value-wise, price action has worked in a concessionary direction for today's auction.
• The curve has steepened: 2s10s are up 2.8bp on the day, at 10.7 having flirted with re-inversion in late Nov for the first time since early September; 5s10s are 1.5bp higher on the day (13.4bp the steepest in a month), While the curve as a whole has steepened - 10s30s are up 1.3bp to 20.4bp, highest since late Oct - 10s have been steady on the 5s-10s-30s fly (-6.7bp last) since late November, though richer vs levels early last month (closer to -2bp).
• The last several auctions have been mixed, alternating between tails and trade-throughs since July (last trading-through 0.3bp in Nov), with the 5-auction average seeing a 0.2bbp tail (heavily influenced by August's 3bp tail). 5-auction average stats include 2.52x bid-cover (2.58x last), 13.7% primary dealer takedown (14.7% last), with indirects taking 69.8% (61.7% last) and directs 16.5% (23.6%). See table below.