Stellar 7Y Treasury Auction Thanks To Massive Month-End Pension Imbalance

After a stellar 2Y, and a medicore 5Y auction, moments ago the Treasury completed the week’s coupon issuance with the sale of $35 billion in 7Y paper in another impressive auction.

The high yield of 3.839% was just above last month’s 3.827%, and the highest since February; it also stopped through the When Issued 3.850% by 1.1bps, the biggest stop through since January.

The bid to cover was even more impressive: at 2.65, it was the highest January’s 2.69 and well above the recent average of 2.51.

The internals however, were the most remarkable: Indirects took down 75.3%, the highest since January and far above the six-auction average of 68.4%. And with Direct Bidders awarded 17.3%, Dealers were left holding just 8.1% of the auction, the third highest on record.

Overall, a stellar auction, in no small part driven by the massive month-end pension fund rebalancing demand (out of equities and into fixed income which we discussed previously) which led to aggressive bidding now that coupon supply is over for the next two weeks, and one which helped push yields across the curve to session lows, providing a modest boost to high duration risk assets.