On February 25th, the Treasury auctioned 7-year notes. It didn't go well.

This week, the US Treasury are going to be auctioning off the following:


Tuesday: 3-year notes

Wednesday: 10-year notes

Thursday: 30-year bonds

In addition, the Treasury also will be issuing a couple of short-term duration bills (less than 1 year). there's also an honest deal of bond supply in the week . 


Recall on February 25th when the Treasury auctioned 7-year notes. It didn't go well. As a result, bond prices moved lower (on less demand) and yields moved higher (yields move inversely to bond prices):Terms to understand for the auction:


In addition to yields (which should be compared the previous auctions) There are several data points released after the results of the auctions are made available (usually a couple of minutes after 1:00pm ET). However, there are two important ones to concentrate to so as to work out if an auction went well:


1) Bid-to-Cover (from Investopedia): the dollar amount of bids received vs the quantity of Treasury securities sold. Bid-to-Cover ratios typically exceed 2.0. A successful bid-to-ratio should substantially exceed the typical of the 12 previous ones. a coffee ratio is a sign of a poor auction. 


*The bid-to-cover from the 7-year auction on February 25h was 2.045, rock bottom on record


2) Indirect vs Direct bidders (from Investopedia): An indirect bidder, commonly a far off entity) bids throughs another party. an immediate bidder purchases the Treasuries during the auction for themselves or their house account. Indirect bidders are often used as a proxy for demand by foreign investors.


*In the 7-year auction on February 25th, only 38.06% of the bidders were indirect bidders. This left direct bidders (mainly primary dealers) removing the balance of the auction.


Market Reaction: With the weak 7-year auction on February 25th, the markets sold bonds, sold stocks, and purchased US Dollars ( as yields went higher). Traders could expect an identical reaction in the week if they auctions are poor. Therefore, US Dollar counter currencies should move lower verse the US Dollar if results are poor.