Wednesday, August 8, 2012

Counting down to the 24bln 10yr auction

With only 10 minutes to go before the 24bln 10yr auction, its time to stop wishing for a chance to sell the market above the center of value (last chance was at 10:30 this morning) and become a spectator.  This auction will be difficult to handicap because of conflicting signals.

On the macro side, US treasuries are still a valid safe-haven asset. (bullish)
On the technical side, there has been a 10 bp selloff since non-farm payrolls, and the market has stabilized, so the concession is decent (though not huge).  We are a few ticks below the recent center of value, so buying the market here is not a horrible value proposition.(bullish)

On the bearish side, we are below the center of the most recent value area.  This means that, on the margin, demand for US treasuries, at the moment, is not huge.  This argues for a small tail, similar to yesterdays 3yr auction.

All in, it seems like a coin toss.  If i was still sitting in my dealer seat, it would pay to play the odds (heads i win, tails you lose), go into the auction short, and bid to buy more than i was short to come out long.  This seems like a "meaah" auction (nothing special) as volumes have been extremely light, especially for an auction day.  This also argues for a tail as some market participants may simply be on vacation.  I won't be playing today (can't see the not involved)

good luck...govttrader

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