The first hint we had coming into today’s auction that it would be weaker than some recent issuance for this maturity, was thanks to the repo rate for 7Y paper, which earlier this morning was quoted at 0.6%, suggesting that unlike this week’s 2 and 5Y paper, there would be few shorts looking to cover into the 1pm deadline.
And sure enough, when the results for the sale of $28bn in 7 paper printed, the result was a modest tail, with a high yield of 1.389% tailing the 1.385% When Issued. As a reminder, last month’s 7Y auction had an even bigger tail but that was due to concerns of a potential rate hike by the Fed in September; this time there was no such concern.
The internals were modest: the Bid to Cover of 2.474 was slightly higher than last month’s 2.383, if below the 12 month average of 2.50. Direct Bidders took down 10.46%, the highest allotment since May, leaving Indirects with 59.4%, higher than August but lower than any preceding month since March, while Dealers were left holding 30.2%.
Overall, a forgettable auction, and like in the aftermath of yesterday’s 5Y issuance, the 2s30s curve has seen another modest flattening, something Kuroda will not be delighted by.
via http://ift.tt/2dfmz0R Tyler Durden