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$29 Billion 7 Year Auction Closes At 2.83%, Indirects Take Down Massive 64.2%

Tyler Durden's picture




 

Today's $29 billion 7 year auction closed at 2.83%, 2.86 Bid To Cover. Unlike yesterday's 5 Year, the WI action is inverted, with the yield dropping immediately following the bond issuance to under 2.79%. What is stunning is that the Indirect Bidders took down 64.2% of the auction, which while we don't have the historical record currently, i likely on the highest in recent history. The massive Indirect participation meant Primary Dealers were left with just 31.2% of the take down. In other words, as we have been claiming for about 3 months now, the volatility from stocks, which are now an inert "asset" class melting up regardless of newsflow, fundamentals, or technicals, has moved entirely to bonds and currencies. Since nobody is left trading stocks, the daytraders are increasingly forced to trade vol in such traditionally stable products as govvies. At this rate of central planning, we expect the VIX to plunge to single digits soon, as the MOVE index explodes sooner or later.

 

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Wed, 12/29/2010 - 14:12 | 836026 RobotTrader
RobotTrader's picture

NY Composite celebrates by printing yet another 2-year high.

Sheesh, can the year end statement markup be more obvious?

Wed, 12/29/2010 - 14:22 | 836052 goldmiddelfinger
goldmiddelfinger's picture

Could your post?

Wed, 12/29/2010 - 14:27 | 836064 HarryWanger
HarryWanger's picture

Year end markup that will certainly, as all indicators are pointing, continue well into 2011. 

Wed, 12/29/2010 - 14:36 | 836082 SheepDog-One
SheepDog-One's picture

Ever find that product catalogue of yours I was asking for a couple weeks ago?

Wed, 12/29/2010 - 14:39 | 836089 goldmiddelfinger
goldmiddelfinger's picture

What for? I hear dildos sell themselves.

Wed, 12/29/2010 - 14:44 | 836109 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Wanger ain't cool enough to work at a porn store.

Wed, 12/29/2010 - 14:52 | 836129 SheepDog-One
SheepDog-One's picture

I guess Harry's retail business is doing so well its now gone underground...secret.

Wed, 12/29/2010 - 15:33 | 836236 Id fight Gandhi
Id fight Gandhi's picture

Amazing he finds the time to troll.

Anyone wanna bet we will see a sell off next week?

Wed, 12/29/2010 - 14:15 | 836027 Fidel Sarcastro
Fidel Sarcastro's picture

The PDs were threatened by Timmah & Benron: Get ur asses to the auction and buy like mad - OR ELSE! (read: loss of PD status, thus free $$)  And I'm betting that a lot of the indirect bidding is done by offshore units of the same Primary Dealers.

Wed, 12/29/2010 - 14:21 | 836046 101 years and c...
101 years and counting's picture

I'm betting the UK just couldn't get enough of the 7 year gov't TP.

 

Wed, 12/29/2010 - 14:17 | 836036 RobotTrader
RobotTrader's picture

Giant green bar just printed on TLT on the 5-min. chart.

Wed, 12/29/2010 - 15:10 | 836177 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

DXY chasing waterfalls....

Wed, 12/29/2010 - 17:04 | 836554 unununium
unununium's picture

Failed to break downtrend in place since Aug. 27, plunging toward 1 stddev lower rail of uptrend in place since 2006.

Wed, 12/29/2010 - 14:17 | 836039 gwar5
gwar5's picture

I sure wouldn't want bonds these days

Wed, 12/29/2010 - 14:28 | 836063 fiftybagger
Wed, 12/29/2010 - 14:28 | 836066 Cdad
Cdad's picture

Not sure it will matter....as it would appear that Ben Bernanke is trying to flatter little Miss Euro again...which always results in that little tart emerging from a club, after way too many mojitos, in the arms of a Chinese man and hurling over the rail.  Something tells me the hurling will begin right around 17:00....SHOCKING!

What a freakin' travesty this market is.  Corporatocracy, kleptocracy, whatever...the entirety of DC and Wall Street need a fire hose turned on them.

Currency intervention, bitchez!

CAPITAL CANNOT FORM IN BANKS AS CORRUPT AS THESE!

Wed, 12/29/2010 - 14:31 | 836075 SheepDog-One
SheepDog-One's picture

Soon PD's will be doing 95% takedowns.

Wed, 12/29/2010 - 14:35 | 836080 firstdivision
firstdivision's picture

Wow did yields fall off a cliff after this auction.  Look at the 5 and 10.

Wed, 12/29/2010 - 14:50 | 836118 viahj
viahj's picture

well after the beat down yields took after yesterday's 5yr auction didn't you expect this?  benny couldn't let back to back days ruin his new year's plans. 

 

everything "green" into 2011

Wed, 12/29/2010 - 14:42 | 836083 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Asia to scratch the US, will the US scratch back?  When will this razor thin paper yield chase end?

Wed, 12/29/2010 - 14:40 | 836095 MikeZM
MikeZM's picture

From my records this is the second highest Indirect takedown on the books.

6/25/2009 - Indirects took down just a tad over 67% of the auction.  

Wed, 12/29/2010 - 14:55 | 836132 Cleanclog
Cleanclog's picture

Happy 7 year auction sure moved 5s and 10s in past few minutes, unless something else is up?

Wed, 12/29/2010 - 15:00 | 836143 mynhair
mynhair's picture

4.1 million TBT just crossed at 37.94 bid, 13:57:25

Wed, 12/29/2010 - 15:03 | 836154 thepigman
thepigman's picture

WTF are Robo and Wanker doing hanging around here remarking on treasury auction results? Pussies....go out and get yourselves some more beta.

Wed, 12/29/2010 - 15:06 | 836169 SheepDog-One
SheepDog-One's picture

Alpha, Beta,...whatever it takes.

Wed, 12/29/2010 - 15:14 | 836178 4shzl
4shzl's picture

Extreme Xmas week volatility has been a staple of the bond market for decades.  Low volume allows da boyz to run the stops and play chicken with each other until New Year's.  Anyone ascribing any larger economic significance to price movements during this period is being foolish.

Addendum: And any non-professional trading during this period deserves what he or she gets.

 

Wed, 12/29/2010 - 15:11 | 836181 plocequ1
plocequ1's picture

But, But, But...

Wed, 12/29/2010 - 15:13 | 836192 dcb
dcb's picture

OK, we know that the big boys have to window dress for end of quarter, we also so that explains why tlt hasn't moved in a two weeks

we also know a reason for the amount of POMO is to prevent the drop for window dressing and prevent profit taking drop at end of year.

Wed, 12/29/2010 - 15:13 | 836195 More_sellers_th...
More_sellers_than_buyers's picture

For the love of Christ...will someone somewhere sell something??? The green is burning my eyes! Telling someone not to be in the market because its a stupid rigged game is like telling your friend not to buy that 3 bedroom cape in town for 800k in 2005 because its just fucking stupid and they look at you like your the idiot. I give up.. wake me when i have to start firing my weapons.

Wed, 12/29/2010 - 15:49 | 836283 mynhair
mynhair's picture

Hang tough - should be a 15 pt drop in the Dow around 3:30.

Buy the fukking dip.

Wed, 12/29/2010 - 22:11 | 837090 SheHunter
SheHunter's picture

Someone sure as hell sold off GS towards the EOD.  Did you see that drop?  Fell from 167.84 to 166.57 and then bounced back to 167.46 in less than 30 seconds.  Sure knocked out many stops and gave traders more reason for cold feet in this rigged, BS, F-ing rigged market.

Wed, 12/29/2010 - 15:23 | 836215 Iranian Dictator
Iranian Dictator's picture

Anyone notice the huge spread on the ES AUD/JPY. 

Wed, 12/29/2010 - 15:34 | 836238 youngandhealthy
youngandhealthy's picture

....why leave this juice stuff to PDs....go grab some yourself

Wed, 12/29/2010 - 16:23 | 836399 DarkMath
DarkMath's picture

Tyler,

Indirect Bidders are piling into the momentary drop in bond prices. You could double your money if bond yields go back to where they were. Why fight the Fed? Heck if rates go even lower you'd more than double your money.

Can someone on ZeroHedge lend me 10 million so I can buy bonds right here.

Wed, 12/29/2010 - 16:25 | 836410 spongeBOB
spongeBOB's picture

why would this be considered a good auction? I mean BTC came in below average and 81%+ was sold at the high. Its not a disaster but far from stellar.

Wed, 12/29/2010 - 16:32 | 836428 youngandhealthy
youngandhealthy's picture

Indirect bidders stuff is interesting...however the third lowest dollar demand of the year is not a solid ++

Wed, 12/29/2010 - 16:33 | 836439 Bam_Man
Bam_Man's picture

In order to fleece the sheep as quickly as possible, there must be "casino-like action" in all asset classes.

And we are getting just that.

Wed, 12/29/2010 - 16:37 | 836454 spongeBOB
spongeBOB's picture

All asset classes except the USD. Even the JPY is now considered "safe haven".

Wed, 12/29/2010 - 16:45 | 836481 Bam_Man
Bam_Man's picture

USD is not an asset class, FX is.

If you don't think the "action" in FX is "casino-like", then you haven't been paying attention.

Wed, 12/29/2010 - 18:25 | 836730 flow5
flow5's picture

Long-term interest rates are determined not only by the various supply and demand factors that affect short-term rates but also by a unique factor; namely, inflation expectations.  The expectation that price levels will chronically increase injects an “inflation premium” into long-term rates.  Under these assumptions, the present supply of loan funds would decrease (in both a quantitative and schedule sense). 

That is to say, lenders as a group, reduce the volume of loan funds offered in the markets, and refuse to loan any particular volume of funds (except at higher rates that will compensate for the expected rates of inflation). 

I.e., higher inflation expectations generate higher inflation premiums.  The higher the expected rate of inflation, the higher long-term rates will climb.

Conversely, borrowers expecting to be able to pay off loans with depreciated dollars will increase their demand for loan-funds. 

Higher interest rates will choke off the economy long before inflationary forces reduces the burden of debt.  I.e., of the two effects, the supply side is the more important, since it literally establishes the minimum for long-term rates (this yield-response prevents the federal deficit from being “inflated away”). 

What is confusing? the global hot money flows that are directly linked to speculation (i.e., they reflect supply side, or resource constraints, rather than demand side inflation). But  inflation is a monetary phenomenon. Inflation occurs when there is a chronic across-the-board increase in prices. or, looking at the other side of the coin, depreciation of money.

Inflation is not a temporary increase in the price level, nor a long-term increase in any particular prices. Inflation simply results from a long-term excessive flow of money relative to the volume of real output of goods and services offered in the markets.

The price indices are passive indicators of the average change of a group of prices. They do not reveal why prices rise or fall. Only price increases generated by demand, IRRESPECTIVE OF CHANGES IN SUPPLY, provide evidence of inflation.

There must be an increase in aggregate demand which can come about only as a consequence of an increase in the volume and/or transitions velocity of money. The volume of money flows must expand sufficiently to push prices up, irrespective of the volume of financial transactions and the flow of goods and services into the market economy.

As an example, count the number of commodity ETF's on Stock-Encyclopedia.com.  Bubble investing is still chic & statistically distorting.

As for bonds, there are crosscurrents. Short-term rates-of-change in most money metrics have quickly accelerated, & are peaking (i.e., the proxy for real-output). Long-term, all money metrics are still falling (the proxy for inflation). And longer-dated securities (over longer time periods), should predominately reflect inflation expectations. So a temporary rally in bonds should not be surprising.

Wed, 12/29/2010 - 22:54 | 837124 johngaltfla
johngaltfla's picture

Sigh. Just watch the TIC for this month and check for a corresponding increase with the Caribbean banksters. They probably were under orders from their PD's to buy as much supply as possible to make it look like the ChiComs and Japs were buying.

Wed, 12/29/2010 - 23:41 | 837167 Captain Kink
Captain Kink's picture

Get short equity this week, IMO.

and long the TLT and volatility.

Clients have profits they don't want to pay taxes on--MANY looking to sell in Jan.

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