I noted yesterday on the Buzz & Banter [subscription required], and Peter Atwater added additional color this morning [subscription required], that there was a large reallocation away from fixed-income ETFs and into equity ETFs on Tuesday. I'm hearing that the asset allocation trade was also occurring in the cash Treasury market, in addition to a large number of rate locks for the tidal wave of investment-grade (IG) corporate issuance over the last two days.
On Tuesday, there were 12 issuers pricing 28 tranches for $20 billion (a record number of tranches), and Wednesday there were 27 tranches from 14 issuers for $21.55 billion, the largest single-day IG issuance of the year. For most of the issues, there was tightening from the initial guidance, and the overall market moved a fraction of a basis point for the day versus Treasuries. So, essentially, the market swallowed the new issuance whole without even a blink.
My thinking is that the wave of corporate issuance is just the marginal reason for the backup in Treasuries this week. Last week the squeeze was on, and this left the market overbought and extended. Moreover, with the Ukraine situation starting to subside, and the market already set up for poor economic activity in the first quarter, there was little buying support at 2.61% in the 10-year. At these levels, I don't feel like there's any great bias being placed for tomorrow's number. The consensus has certainly moved down by about 20K to 130K (vs the 150K Bloomberg estimate).
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