A stop-through is the opposite of a tail. The Treasury auction's high yield comes in below the when-issued yield at the bidding deadline, so bidders accepted less yield than the market was offering seconds earlier. Demand was bigger than the screens implied.
Traders take a stop-through as straight bullish for the maturity being sold. Everything public is already in the when-issued price, so an auction that clears through it has found buyers nobody could see. Often they are foreign central banks or pension funds bidding through indirect channels, and they wanted the paper badly enough to concede on price.
A stop-through of 1bp or more, with the bid-to-cover above average and a strong indirect award behind it, is about the cleanest demand signal an auction can print. If one tenor keeps stopping through, the market is under-positioned for duration there.
Say the when-issued 2-year yield is 3.982% at 1:00 p.m. and the auction stops at 3.958%. That is a 2.4 basis point stop-through. Bid-to-cover came in at 2.71x against a 2.55x average, and indirects took 68%. Two-year yields rally 3bp on the print, and the front end outperforms for the rest of the session as shorts cover into demand nobody had expected.
| DATE | HIGH YIELD | TAIL VS WHEN-ISSUED | BID-TO-COVER | INDIRECT |
|---|---|---|---|---|
| 4.834% | -1.5bp through | 2.71 | 79.2% | |
| 4.683% | +0.1bp tail | 2.53 | 76.7% | |
| 4.580% | -0.6bp through | 2.59 | 81.5% | |
| 4.538% | not captured | 2.57 | 78.2% | |
| 4.468% | not captured | 2.40 | 64.0% |
