Not really a quant question but why would someone buy us swap spreads before a US treasury auction. I get the idea of bidding for the bonds and then using the swap leg to asw the bond but whats the point of buying swap spread unless you have an outright view on how the auction is going to go. If the auction goes well you assume ust outperform swap and swap spreads widen but it could very well go the other way around so is there something obvious explaining why the smart money pays swap spreads on auction day? Thanks for the insight!

  • $\begingroup$ I’m not sure I’ve observed that behavior in a systematic manner. I can take a guess as to why someone might do that: Treasuries have underperformed in the lead up to the auction, so investors might want to buy them cheaply and have the view that swap spreads is a better expression that outright purchase. $\endgroup$
    – dm63
    Jul 27 '21 at 20:50

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