Treasuries are surging following a well-supported government auction of $US21 billion of 10-year notes at 1 PM ET.
The auction “stopped through,” meaning the highest yield of bonds issued in the auction (2.946%) was below the “when-issued” yield heading into the auction (2.970%).
The bid-to-cover ratio — the dollar amount of bids for the bonds versus the actual dollar amount issued — was 2.86, a sharp increase from 2.45 in the government’s previous auction of 10-year notes.
Earlier today, Verizon priced the largest corporate bond offering ever, selling $US49 billion in debt to help finance its recent acquisition of Vodafone’s wireless assets.
Traders say market participants engaged in “rate locking,” which involves shorting Treasuries to hedge against a rise in rates that could adversely affect the pricing of the Verizon deal.
An unwind of that short-Treasuries trade could be responsible for the big lift from today’s 10-year auction, as a few traders on suggest on Twitter.
Looks like a rate unlock into the auction. It comes 2bps thru
— Ed Bradford (@Fullcarry) September 11, 2013
strong 10yr auction…comes thru 1.6 bps (all those peeps who sold into the VZ deal pricing scrambling to cover)
— govttrader (@govttrader) September 11, 2013
Right now, 10-year Treasury futures are up 0.4% on the day, and the yield on the 10-year note, at 2.91%, is 5 basis points below yesterday’s close.
The chart below shows the move in 10-year Treasury futures post-auction.