U.S. Treasury: Record quarterly refunding this week
Authored by Mike Geraty
The U.S. Treasury will issue $96 billion in bonds this week: $42 billion three-year notes on Monday, $32 billion 10-year bonds on Tuesday and $22 billion 30-year bonds on Wednesday. The quarterly cycle for these auctions is February, May, August and November.
Threes are currently yielding 0.225%; tens are yielding 0.725%; and thirties are yielding 1.445%. The securities are currently trading on a when-issued (WI) basis (formally referred to as “when, as and if issued”). Until the auction takes place, the securities simply trade on a yield basis.
After the auction takes place, the Treasury picks the coupon to the nearest one-eighth of a point that prices the bond closest to par and at a discount. The three-year note will have a coupon of 0.125%. The 10-yearshould print at 0.625% and the 30-year should carry a 1.50% coupon. All three will be record low coupons.
WI trades are canceled and rebilled from a yield to the price that equals the yield.
Stocks used to trade in eighths of a point as well. The minimum bid-ask spread was 12.5 cents per share, or $12.50 per 100 shares. This practice dates back to the 1600s in Spain. Gold doubloons were divided into halves, fourths and eighths for trading.
While stock prices were decimalized by the Securities and Exchange Commission (SEC) in 2001, the bond market still follows the tradition. However, bid-ask spreads in the Treasury market have shrunk to 1/256th, or one-eighth of 1/32nd, or $39.06 per million.
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