The Most Important Auctions In Recent Memory

“There’s no deep loyalty to most of the reopening names,” one CIO told CNBC on Wednesday. “No one wants to overown Carnival Cruise Lines, or United Airlines or even Chevron.”

It was an amusingly blunt assessment. Normally, I don’t read “articles” on CNBC’s website, but I was lured by the headline, which found wall fixture Bob Pisani declaring that Wednesday’s 10-year auction in the US “could make or break the stock market.”

Good for Bob. And good for CNBC for what I imagine was a begrudging decision to lead with an article about Treasury supply. Maybe an editor read “reopening” and thought it was about New York restaurants. (Some of you will get that joke.)

Whatever the case, it worked out for the network. That linked piece was briefly the top trending article on the site, even managing to best a fluff piece about stimulus checks being garnished. (Cue Fletch: “I can’t have my wages garnish-ied.”)

Of course, by the time a story makes it onto CNBC’s front page, it’s invariably (and hopelessly) stale. Upcoming supply has been top of mind for “serious” market participants (and I’m not even sure I know what a “serious” market participant looks like anymore) since last month’s God-awful seven-year sale. Coming into the week, it was all anyone cared about, frankly. Last month’s seven-year debacle marked “peak tantrum” in many respects, and that day’s bear flattening was seen as a particularly ominous development, especially when considered with other evidence that rates were beginning to pull forward Fed hikes.

While Tuesday’s three-year auction went fine, the real hand-wringing was around Wednesday and Thursday — i.e., “Where The Duration Risk Lies” (I tried a Maurice Sendak allusion there).

The cooler-than-expected February CPI print eroded the concession, but you’d think yields were close enough to their YTD peak to be enticing. “Even though yields have moved from the local highs, today stood to be the loftiest clearing rate for a 10s auction since February 2020 and the benchmark holds some appeal on the curve,” BMO’s Ben Jeffery said, while simultaneously documenting a series of potential headwinds, including the increasingly vexing SLR ambiguity.

“To the extent it reflects a large short base that may use the auction to cover, [the] current 10-year issue’s specialness in repo is [a] possible source of demand,” Bloomberg’s Edward Bolingbroke wrote, referencing anomalous borrowing costs that recently made for great headline fodder if you enjoy hypnotizing the masses by mystifying what, ultimately, is not a particularly complicated dynamic. Fails hit a four-month high earlier this month (figure below).

For everyday market participants, the point is straightforward: The rapidity of recent rate rise served to catalyze a fairly acute rout in expensive corners of the market, including tech shares, some of which play Atlas due to their huge weights in benchmarks.

The rates tantrum was exacerbated materially by last month’s seven-year flop, and the overwrought bearishness towards bonds is readily observable, whether you’re a “naked eye” type who prefers to just casually note that Treasurys can’t seem to hold a bid or you’re a person who prefers to infer the short base from repo supply/demand.

A solid 10-year auction would help alleviate the hodgepodge of concerns plaguing the bond market, and thereby clear the way for secular growth (i.e., equities expressions tethered to duration) to calm down. A poor result either at Wednesday’s 10-year sale or Thursday’s 30-year auction had the potential to do the opposite.

“It’s been a long time since stock traders have cared about bond auctions,” Miller Tabak’s Matt Maley told CNBC’s Pisani, for the same article mentioned here at the outset.

This all underscores the more nuanced discussion from “Churn And ‘The Absence Of Conviction’

BMO’s Jeffery called Wednesday’s 10-year sale “one of the most closely watched auctions in recent memory.” And the CIO who spoke to Pisani said “investors want to own tech.”

Those two things (this week’s Treasury supply and investors’ willingness to buy the dip in tech) are joined at the hip, just like Tesla and Cathie Wood.

Ultimately, Wednesday’s auction tailed, but it was far from the kind of irredeemable sin markets witnessed on February 25. “Perhaps they needn’t have paid up so much,” Bloomberg’s Cameron Crise wrote, after noting that the when-issued came into the auction trading at its lowest yield of the session. “Obviously, the market impact isn’t quite the same as if we had tailed at the high yield of the day rather than the low,” he added.


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