Grading The Most Recent Auctions By Tenor
In this recent blog post we described a simple, yet systematic, approach to grading US Treasury auctions. Like before, we examine the following data items:
- Tail - This is the difference between the highest and average yield obtained by auction participants (reported in basis points). It is indicative of whether or not all buyers paid a similar price or did some get bonds on the cheap. A small tail relative to history is considered better.
- Bid-to-Cover (BTC) - This measures the total amount of bids received for a given auction divided by the amount actually sold. Higher relative to history is better.
- Indirect - This is the percentage of non-competitive bidders (typically foreigners) placing bids through a primary dealer. They participate this way because they are often unable or unwilling to do so directly. Higher relative to history is better.
- Direct - The is the percentage of institutions who are placing bids on the auction directly with the US Treasury. Higher relative to history is better.
We use them to grade different tenor auctions in a standardized way. This allows us to compute an overall composite score to judge subsequent auctions relative to passed ones.
Table 1 shows these data tabulated for the most recent auction held for each tenor.
| Date | Tenor | Total | Avg | Hi | Tail | BTC | Indirect | Direct |
|---|---|---|---|---|---|---|---|---|
| 2024-09-05 | 4-Week | 74 | 5.22 | 5.27 | 5 | 2.93 | 67.1 | 4.9 |
| 2024-09-05 | 8-Week | 78 | 5.26 | 5.28 | 2 | 2.98 | 59.7 | 7.7 |
| 2024-13-05 | 13-Week | 68 | 5.24 | 5.25 | 1 | 2.77 | 58.3 | 6.1 |
| 2024-08-05 | 17-Week | 59 | 5.23 | 5.24 | 1 | 3.04 | 48.7 | 5.4 |
| 2024-13-05 | 26-Week | 68 | 5.15 | 5.17 | 1 | 3.02 | 61.2 | 7.3 |
| 2024-16-04 | 52-Week | 44 | 4.90 | 4.92 | 1 | 2.88 | 65.8 | 2.4 |
| 2024-23-04 | 2-Year | 68 | 4.85 | 4.90 | 5 | 2.66 | 66.2 | 18.7 |
| 2024-07-05 | 3-Year | 58 | 4.55 | 4.61 | 6 | 2.63 | 65.5 | 19.6 |
| 2024-24-04 | 5-Year | 70 | 4.59 | 4.66 | 7 | 2.39 | 65.7 | 19.2 |
| 2024-25-04 | 7-Year | 44 | 4.66 | 4.72 | 6 | 2.48 | 65.1 | 21.0 |
| 2024-08-05 | 10-Year | 42 | 4.42 | 4.48 | 6 | 2.49 | 65.5 | 18.7 |
| 2024-21-02 | 20-Year | 16 | 4.51 | 4.59 | 8 | 2.39 | 59.1 | 19.7 |
| 2024-09-05 | 30-Year | 25 | 4.58 | 4.63 | 5 | 2.41 | 64.9 | 19.8 |
Table 1: Auction Raw Data by Tenor
In addition to the factors we use for scoring, Table 1 also reports the following
- Total Accepted (Total) - The entire dollar amount auctioned for the given tenor.
- Average Yield (Avg) - The average yield obtained (average price paid) by auction participants.
- High Yield (High) - The highest yield obtained (lowest price paid) by auction participants.
Table 2 shows the raw data in Table standardized and mapped to letters grades. This includes the composite grade we calculate based on the average of the individual factors grades.
| Date | Tenor | Total | Avg | Hi | Tail | BTC | Indirect | Direct | Composite |
|---|---|---|---|---|---|---|---|---|---|
| 2024-09-05 | 4-Week | 74 | 5.22 | 5.27 | D+ | D+ | A | C- | C |
| 2024-09-05 | 8-Week | 78 | 5.26 | 5.28 | B- | C | B+ | B | B- |
| 2024-13-05 | 13-Week | 68 | 5.24 | 5.25 | B- | D | A | C | C+ |
| 2024-08-05 | 17-Week | 59 | 5.23 | 5.24 | B+ | B- | D | B- | C+ |
| 2024-13-05 | 26-Week | 68 | 5.15 | 5.17 | B- | D+ | A | B- | B- |
| 2024-16-04 | 52-Week | 44 | 4.90 | 4.92 | B- | D | A | D+ | C |
| 2024-23-04 | 2-Year | 68 | 4.85 | 4.90 | D+ | D+ | A | B- | C+ |
| 2024-07-05 | 3-Year | 58 | 4.55 | 4.61 | D | D+ | A | B+ | C+ |
| 2024-24-04 | 5-Year | 70 | 4.59 | 4.66 | D | D+ | B+ | A | C+ |
| 2024-25-04 | 7-Year | 44 | 4.66 | 4.72 | C | C- | B | B+ | B- |
| 2024-08-05 | 10-Year | 42 | 4.42 | 4.48 | C- | C- | B | B+ | C+ |
| 2024-21-02 | 20-Year | 16 | 4.51 | 4.59 | D | C | D | B+ | C- |
| 2024-09-05 | 30-Year | 25 | 4.58 | 4.63 | B | B- | B+ | B+ | B |
Table 2: Auction Grades by Tenor
Recent composite grades have been largely average with values ranging from C- to B. It is informative to view these results graphically. Figure 1 shows bar charts for each individual raw factor as a function of tenor.
Figure 1: Auction Grades by Factor and Tenor as of May 13, 2024
Grades have been superimposed on the chart using the color scale shown in the legend.
Quick visual inspection shows that the higher (and above average) grades have been earned by the Indirect factor. The same is largely true for Direct however there is an interesting stair step in the data between the 52-Week and 2-Year tenors. Tail and Bid-to-Cover have produced below average grades.
The raw data and charts for the individual tenors and factors can be experimented with using the following app. If you have any feedback please send it to us here.
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