The component pieces of the auction all were better than the averages with the exception of the domestic buyers who are squeezed out by the international buyers who exerted strong demand for the issue.
The 20 year issue is not a major interest for investors.
High Yield
The high yield is the highest yield accepted at the auction and becomes the yield awarded to all successful bidders.
- Higher-than-expected yield = weaker demand.
- Lower-than-expected yield = stronger demand.
Tail
The tail measures the difference between the auction’s high yield and the yield where the bond was trading just before the auction (the “when-issued” yield).
- Positive tail (high yield above WI yield) = weaker auction.
- Negative tail or stop-through (high yield below WI yield) = stronger auction.
Example:
- WI yield: 4.50%
- Auction high yield: 4.53%
- Tail: +3 basis points (weak)
Bid-to-Cover Ratio
The bid-to-cover ratio measures total bids received relative to the amount offered.
Formula:
Bid-to-Cover = Total Bids ÷ Amount Offered
Example:
- Treasury sells $22 billion
- Receives $55 billion in bids
- Bid-to-cover = 2.50
Higher ratios generally indicate stronger demand.
Direct Bidders (%)
Direct bidders submit bids directly to the Treasury.
Typically includes:
- Domestic money managers
- Pension funds
- Mutual funds
- Some hedge funds
A higher direct percentage often suggests strong domestic investor interest.
Indirect Bidders (%)
Indirect bidders are primarily:
- Foreign central banks
- Sovereign wealth funds
- Foreign institutions
This is often the most closely watched category.
A high indirect take is usually viewed as a positive sign because it indicates strong foreign demand for U.S. debt.
Dealers (%)
Primary dealers are required to participate and buy any securities not taken by others.
Examples include:
- JPMorgan Chase
- Goldman Sachs
- Bank of America
A high dealer allocation is generally viewed as a negative because it means investors were less willing to absorb the supply.
Quick Auction Scorecard
| Metric | Strong Auction | Weak Auction |
|---|---|---|
| High Yield | Below expectations | Above expectations |
| Tail | Negative (stop-through) | Positive |
| Bid-to-Cover | High | Low |
| Direct % | High | Low |
| Indirect % | High | Low |
| Dealer % | Low | High |
