30 Year Prices At 4.38% In Very Weak Auction; Indirects Flee

Tyler Durden's picture

And so we close this week's bond issuance with a very disappointing 30 Year, which priced $16 billion at 4.38, nearly 4 basis point wide of the When Issued, and at a very weak 2.43 Bid To Cover: the lowest since November's 2.31. And with the high yield closing at the lowest level for primary issuance in 2011, it is not surprising that foreigner expressed very little interest in this auction: only 33% of the auction went to foreign buyers, whose hit rate was a very high 81.2% (total Indirect tender was just $6.5 billion or 41% of the total), indicating that even had the entire Indirect order book been filled, it would not have covered even half of the auction. 8.7% of the bond went to Direct Bidders, leaving Dealers having to bail out the auction once again, with a massive take down of 58.2%. Altogether a very weak auction, and likely the last one for a long time now that the Treasury is in deep debt ceiling trouble.

And why the market surges on what is a collapse in the long end, is beyond us:

And Stone McCarthy's more objective view of this disastrous auction:

If the Indirect bid today was any indication, Indirect bidders ran from today's auction.

The combined buyside takedown today was just 41.8%. That is down from 58.0% last month and is the second smallest buyside takedown since May 2009.

The Indirect bid was a particularly bid disappointment. The Indirect bid fell to just $6.5 billion. That was the smallest Indirect bid since October 2010. It accounted for only 16.7% of the overall bid, which was the smallest Indirect bid share since May 2008. The only positive to the indirect bid was that what little bid there was turned out to be fairly aggressive, judging by the large hit ratio. Even so, Indirect bidders took down only 33.0% of the auction, which his well down from 47.2% last month and the smallest Indirect takedown since October 2010.

The Direct bid was nothing out of the ordinary. The $5.1 billion Direct bid was off only slightly from $5.2 billion last month, and it accounted for an average 13.1% of the overall bid. The Direct bid wasn't very aggressive though, and the small hit ratio resulted in a takedown of only 8.7%, which only slightly below the 9.2% average Direct bidder takedown since last September.

The drop in buyside demand left Dealers to take up the slack, which they endeavored mightily to do, based on the size of the bid. The $27.2 billion Dealer bid was a record, and it accounted for 70.1% of the overall bid. The Dealer hit ratio was also quite large, although that may have been a combination of Dealer aggressiveness and the fact that the buyside failed to show up in a significant fashion today. That left Dealers with 58.2% of the auction.