While many were surprised when yesterday’s 2 Year auction saw absolutely blistering demand, including a near record Indirect take down and a yield stopping deeply through the When Issued, none of that was on display in today’s 5 Year auction which concluded moments ago when the Treasury sold $35 billion of Cusip N89 at a yield of 1.496%. The problem: this was 0.9 bps wide of the When Issued and the biggest tail since June 2015. Then again, as SMRA notes, “Five-year note auctions have a tendency to stop fairly wide of the 100pm WI bid side though – in both directions.”
Today it was in the wrong direction.
It wasn’t just the pricing that was weak, it was the internals as well where Directs dipped to 8.6%, the lowest since October, Indirects likewise had little interest taking down 53.5% at a whopping 98.3% hit rate, which meant Dealers had to sop up the bulk of the auction picking up 37.8% of the paper, the most since August 2015.
Perhaps the only silver lining was the Bid to Cover which rebounded from last month’s 2.32, the lowest since 2009, rising modestly to 2.44.
Perhaps the reserve liquidators who showed such interest in the short-end of the curve, are a little too pregnant with paper in the belly: we will find out for sure tomorrow when the 7 Year auction prices. If, likewise, it is a poor showing, then one can slowly build a representation of where “Indirects” are over exposed in terms of inventory.
via Zero Hedge http://ift.tt/205lnS1 Tyler Durden