First Auction of Term Security Lending Facility Shows Less Desperation

Top-notch banks and brokerages on Wall Street appear less desperate than feared for super-safe Treasurys, if the soft demand for the first auction of the Federal Reserve's security lending facility is any guide. At the same time, cash borrowings at the Fed's primary dealer facility increased modestly from a week earlier, averaging a daily $32.9 billion in the latest week to Wednesday. In the first Treasurys swap, dealers put in a mere $86.1 billion in bids for the $75 billion in Treasury securities on offer, according to the New York Fed. The Fed accepted a broad range of hard-to-trade mortgage debt as collateral for its loans of super-safe government debt. Mr. Franzese said people had expected dealers to submit as much as $100 billion for the auction. The lower-than-expected bids suggested dealers "aren't dying for the money." As a result, the low-risk Treasurys markets saw a knee-jerk sell-off after the auction results were announced. Short-dated Treasurys, such as three-month T-bills and two-year notes, erased early gains, while the five-, 10- and 30-year sectors were down further following the auction results. The benchmark 10-year note ended down 11/32 point, or $3.4375 for every $1,000 invested, to yield 3.534%. That's up from 3.494% Wednesday. Yields rise when prices fall. Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, said dealers did not show signs of "being desperate" to get their hands on Treasurys much beyond what was available, given the 1.15 bid-to-cover ratio. Bid-to-cover is a gauge of demand used in auctions that measures the ratio of the amount on offer and the amount of bids submitted.