Yields Reach Session High Following Unattractive 2Y Auction as Trump's Odds Increase

Busy Week Ahead with Expected Surge in New Bill Issuance

As we head into a week full of activities, we are anticipating Wednesday's quarterly refunding. This is when we are likely to hear about an increase in new Bill issuance, which is expected to deplete the reverse repo within weeks. Today, we kick off with a barrage of coupon issuance, starting with two offerings, a 2Y and a 5Y auction. The first of these has just been priced, with $69BN in two-year paper selling at a high yield of 4.130%. This is a significant increase from last month's 3.520%, a spike attributed to the resurgent Trumpflation trade. The market is pricing in a much higher debt issuance under a potential second Trump presidency. This is the highest yield since July. The auction also tailed the 4.122% When Issued by 0.8bps, marking the first tailing 2Y auction since May.

Lowest Bid to Cover Since May

The bid to cover came in at 2.504, a decrease from last month's 2.588, marking the lowest since May.

Unappealing Internals

The internals were not attractive, with Indirects awarded just 58.2%, the lowest since May. Directs, on the other hand, took down a surprisingly high 23.8%, the most since May. Dealers were left with 17.9%, which is the biggest such award since December 2023.

Yields Spike Amidst Fears of Trump Presidency

Whether the poor 2Y auction or the growing fear about a Trump presidency is to blame, yields spiked to session highs. With 10s now just shy of 4.30%, even stocks will soon have no choice but to take notice.

Bottom Line

It's clear that the financial landscape is shifting as the possibility of a second Trump presidency looms. The unattractive 2Y auction and the spike in yields are just a few indicators of the market's reaction. As we move forward, it will be interesting to see how these developments continue to shape the financial sector. What are your thoughts on these developments? Do you think the market's reaction is justified? Share this article with your friends and let us know your thoughts. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.