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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.

 


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Thu, 05/12/2011 - 13:20 | Link to Comment FOC 1183
FOC 1183's picture

and just like that.  a terrible auction triggers the purchase of 200k e-minis.  algos love their correlations

Thu, 05/12/2011 - 13:35 | Link to Comment camaro68ss
camaro68ss's picture

And just like that silver and gold rebound!

Thu, 05/12/2011 - 13:36 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Well ID'd.

Thu, 05/12/2011 - 13:19 | Link to Comment Hondo
Hondo's picture

All new securities immediately leveraged with proceeds put into equity

Thu, 05/12/2011 - 13:19 | Link to Comment baby_BLYTHE
baby_BLYTHE's picture

Markets GREEN. You cannot make this shit up!

Thu, 05/12/2011 - 13:23 | Link to Comment Sudden Debt
Sudden Debt's picture

Calculating in QE3 trough 12

 

Thu, 05/12/2011 - 13:38 | Link to Comment Cassandra Syndrome
Cassandra Syndrome's picture

Grim news is growing, so its practically a certainty. At the very least QE2 lite.

Thu, 05/12/2011 - 13:51 | Link to Comment legal eagle
legal eagle's picture

Baby blythe kinda looks like the cover of the first evanescence album, like it.

Thu, 05/12/2011 - 14:22 | Link to Comment baby_BLYTHE
baby_BLYTHE's picture

That was there only good album too!

Here is a better female fronted band (the lead singer is a friend of mine!):

http://www.youtube.com/watch?v=1H4SVRApGhM

Thu, 05/12/2011 - 13:19 | Link to Comment Sudden Debt
Sudden Debt's picture

DON'T WORRY!!! PRIVATE INVESTORS WILL SOON FLOCK INTO THE BONDS MARKET!!!

 

cnbc said so last week....

 

WHOEHAHAHAHAHAHAHAHA!!!!!

Thu, 05/12/2011 - 13:22 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Okay, ZH has reported on the debt ceiling breach several times now.  Is this really it guys?  There should be a huge carry trade in here somewhere for this limbo period, right?  What's up and what will the next set of treasury shenanigans be coming from Turbo Timmy?

Thu, 05/12/2011 - 13:25 | Link to Comment Tyler Durden
Tyler Durden's picture

Dont take our word for it. Here is Dow Jones: "US Treasury auction to take US over debt ceiling on Monday."

Thu, 05/12/2011 - 13:28 | Link to Comment Sudden Debt
Sudden Debt's picture

Maybe nobody will notice?

 

Thu, 05/12/2011 - 13:37 | Link to Comment camaro68ss
camaro68ss's picture

Awwww Debt ceiling is just a number right

Thu, 05/12/2011 - 13:47 | Link to Comment tickhound
tickhound's picture

Debt target resistance breached, becomes support, set sights on new target

Thu, 05/12/2011 - 14:28 | Link to Comment SheepDog-One
SheepDog-One's picture

If The Bernank keep his hands over his eyes, he's pretty sure no one can see him.

Thu, 05/12/2011 - 13:32 | Link to Comment 6 String
6 String's picture

The thing about Boehner is will he really hold the line? What is the history on this guy. In the linked article he is quoted and indeed right...."it's more irresponsible to hike the limit without serious budget cuts."

Boehner sounds steadfast. And if this were true, we can expect a U.S. default....but it's happened a couple times in the late 90s and the markets went up. Any take on this?

 

Thu, 05/12/2011 - 13:42 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

I'm sorry to say this, but Boehner can't hold the line. Hell, nobody can. You can't run huge deficits without increasing the debt limit, and there's zero chance spending cuts could come anywhere close to balancing the budget, especially with the economy in the shits. 

The problem with having your own currency and printing presses is that nothing can stop the goons in DC from spending us into oblivion. With the Fed and PD's as enablers, Timmy can continue to sell bonds and finance deficits forever. Of course at some point all hell will break loose and either the Gov't will be overthrown or a new currency will be issued. Welcome to the wonderful world of true fiat currency.

Thu, 05/12/2011 - 13:51 | Link to Comment 6 String
6 String's picture

Why, though, don't you think he can hold the line? I understand the thesis:

No increased limit, shutdown of government funding, economy goes into deflationary death spiral.

But, even then, if Boehner gets his way, massive spending cuts but a 2 trillion debt-limit raise, economy noise-dives, and the Bernake prints--again.

Since all roads are irresponsible now--Congress and the Federal Reserve are boxed in, why the hell can't Boehner hold whatever line he wants? It's all fucked anyway, right?

I know the problem is we all just want to get the Weimar rally on now--since at least the outcome is somewhat more predictable....but the Boners of the world, excuse me, Boehner, can just cause a deflationary hell instead. And who's to say that is not ulimately the better course?

So, Boehner knows this, and it doesn't asnwer my question. Why can't he hold the line?

Thu, 05/12/2011 - 14:15 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

The Fed spent $3.55 trillion in 2010, which comes to a little less than 25% of GDP. Revenue for 2010 was $2.13 trillion, and the deficit was $1.42 trillion, so the deficit contributed to about 10% of GDP.

With revenues not improving significantly, cutting spending would crush the economy, along with the re-election hopes of the Beltway Bandits. There's no political will to allow this to happen, and any politician who tells you otherwise is being disingenuous. Politically speaking it can't happen, so it won't happen. 

*Added: I'm not saying there won't be temporary shutdowns, as there may well be. But temporary shutdowns are almost always politically motivated and will do little or nothing to remedy the mess we're in.

Thu, 05/12/2011 - 14:21 | Link to Comment 6 String
6 String's picture

Sure there is a political will...if Boehner and Co. successfully destroy the economy while blaming Obama and Co. for reckless "status quo" then there's your incentive.

I believe in what you're saying Sancho, even agree. But perhaps if a half-bright like me can understand we're damned if we do and damned if we don't I think there enough in politics that fully understand this too. In fact, I'm sure Boehner has seen the Lindsay report and many others as well...

Which mean they can hold the line and pick any fucking fight they want and default be damned--because it's going to end up a voluntary default or otherwise.

Thu, 05/12/2011 - 14:36 | Link to Comment Clorox Cowboy
Clorox Cowboy's picture

Yeah, but if you're a politician there's a huge difference between knowing the end of the US ponzi scheme is near, and actually signing its death sentence.  If Boner causes us to default and worst-case scenarios come to pass, we could be looking at a complete "changing of the guard" (from inside or outside the current system, take your pick).  He would effectively be putting his job in more jeopardy by defaulting than by pretending to be a tough guy.

Nobody in Congress will ever do it.

Thu, 05/12/2011 - 18:28 | Link to Comment chubbar
chubbar's picture

What if the Repukes are worried about winning the whitehouse and having the majority in congress next year when they KNOW this puppy is going down? Would that be incentive enough to pull the trigger early on Obummers watch???

Thu, 05/12/2011 - 14:55 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

The dollar is the world's reserve currency. Much of the wealth of foreign countries is held as dollar currency reserves, and is used for international trade and purchases of crude. 

There are times I'd love to tell the rest of the world to 'stick it', but that could be viewed an act of war by other nations. Undoubtedly all hell would break loose. A default would be much more plausible if there were another reserve currency.

 

Thu, 05/12/2011 - 14:20 | Link to Comment DeadFred
DeadFred's picture

Because he is a politician who believes that long term he can do good for his constituents (and himself) by staying in office. He will stay in office if he can 1) bring in contributions and 2) avoid giving his future opponents deadly soundbites for their attack ads. His consultants have told him that a US default will produce very,very nasty soundbites. Morally holding the line is the right thing but it is political suicide and it won't happen. Some devil's compromise will be worked out that gives soundbites to both sides, feeds the banksters and kicks the can down the road.

Thu, 05/12/2011 - 14:31 | Link to Comment Clorox Cowboy
Clorox Cowboy's picture

He doesn't have to hold the line all the way to default in order to get what he wants (the same thing EVERY politician wants...to make the other side look worse).  All he needs to do is rachet up the hate-speech until late June / early July and get more cuts than the Democrats are willing to give him today and he wins...in the Charlie Sheen sense of the word "winning".

Political memory is short, therefore why would Boner choose the "correct" long-term solution (default), when the less-optimal solution above makes him look like a hard-fighting debt patriot superhero to the sheep, with none of the short-term hardships that a default would create?

Thu, 05/12/2011 - 14:48 | Link to Comment 6 String
6 String's picture

All excellent points, thank you.

Thu, 05/12/2011 - 13:44 | Link to Comment LawsofPhysics
LawsofPhysics's picture

From Tyler's link above;

"House Speaker John Boehner (R., Ohio) said Monday that any increase in the government's debt limit should be accompanied by trillions of dollars in spending cuts.


"It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt limit without simultaneously taking dramatic steps to reduce spending and to reform the budget process," he said."

 

If Boner intended to hold the line, he would realize that default is the responsible thing to do.  Defense and entitlements remain the only cuts that would make any difference at all.  Anyone really think the debt ceiling won't get raised?

Thu, 05/12/2011 - 13:47 | Link to Comment Chump
Chump's picture

Boehner is a boner saying whatever he thinks will get him elected over and over and over and over.  Any Republican who wants to chastise anyone else for astronomic spending needs to go eat a bag of dicks.

The US does not default if it hits the debt ceiling; it defaults if it can't pay interest and principal on its debt.  Hitting the debt ceiling means the US government cannot issue new debt (that's a good thing, unless you're a leechfuck).  The US government currently collects sufficient revenue to pay for interest and principal payments.  Entitlements?  Not so much.

Guitar picker?  I'm trying to get a handle on this here 5-string banjo.  Much more difficult than I anticipated.

http://www.youtube.com/watch?v=cyzxv-kuDBY

Thu, 05/12/2011 - 14:52 | Link to Comment 6 String
6 String's picture

Chump, forget about it. Lester Flatts da man.

Thu, 05/12/2011 - 13:41 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Wonder how long it will take them to revise that article?

Thu, 05/12/2011 - 13:33 | Link to Comment Alex Kintner
Alex Kintner's picture

It's like popping the cherry. I can only be done once. The virgin is now a whore. No longer a news story.

Thu, 05/12/2011 - 13:20 | Link to Comment 6 String
6 String's picture

Russell 2000 is all that matters. Auctions to proceed Monday without hiccup.

They are nearing the end of this tunnel, how will the other side of it look?

Thu, 05/12/2011 - 13:24 | Link to Comment lolmao500
lolmao500's picture

This market is insane. Has been since 2007.

Thu, 05/12/2011 - 13:25 | Link to Comment firstdivision
firstdivision's picture

My favorite headline from the day thus far "Fed warns politicians to raise US debt ceiling".  Cause daddy wants to buy more coupons!

http://www.france24.com/en/20110512-fed-warns-politicians-raise-us-debt-ceiling

Thu, 05/12/2011 - 13:25 | Link to Comment Don Quixotic
Don Quixotic's picture

Anyone with any thoughts on how this will affect PMs and/or equities? Seems equities and PMs have both gone up in the immediate aftermath... what about the long term?

Thu, 05/12/2011 - 13:28 | Link to Comment topcallingtroll
topcallingtroll's picture

My best educated guess is that in the long term we are all dead.

Thu, 05/12/2011 - 13:33 | Link to Comment Don Quixotic
Don Quixotic's picture

Too true.

Thu, 05/12/2011 - 13:36 | Link to Comment Don Quixotic
Don Quixotic's picture

Does that mean you're calling a top on life?

Thu, 05/12/2011 - 13:39 | Link to Comment JuicyTheAnimal
JuicyTheAnimal's picture

Silver shorts better cover now. 

Thu, 05/12/2011 - 13:27 | Link to Comment plocequ1
plocequ1's picture

"Likely the last one for a long time now that the Treasury is in deep debt ceiling trouble"

Theres new and improved debt ceiling software that solves any annoying debt ceiling issues. Rally on

Thu, 05/12/2011 - 13:24 | Link to Comment Sudden Debt
Sudden Debt's picture

CAN'T WAIT UNTILL THE SUMMER KICK'S IN!!

 

June... what a beautifull month.

Woman wearing short skirts...

Woman with tops that are to small...

Imploding bonds markets...

BBQ time every day...

...

Live is just great :)

 

Thu, 05/12/2011 - 13:38 | Link to Comment Abitdodgie
Abitdodgie's picture

Do you live in England by any chance.

Thu, 05/12/2011 - 13:36 | Link to Comment ZakuKommander
ZakuKommander's picture

OT, except for BBQ.

Everyone ought to get one of these:

http://www.biggreenegg.com/

I come home from work, put in the wood charcoal, by the time I change (15 minutes) it's at 700 degrees F.  Haven't made a bad steak, burger, chop, fish in 4 years.  

No less necessary than physical silver necessary to a comfy survival.

Thu, 05/12/2011 - 14:50 | Link to Comment WideAwake
WideAwake's picture

and what would the summer be without pissed off Greeks in the streets and the sweet smell of CS gas in the air

Thu, 05/12/2011 - 13:26 | Link to Comment Xibalba
Xibalba's picture

RALLY!!!!!!!!!!!

Thu, 05/12/2011 - 13:31 | Link to Comment Alex Kintner
Alex Kintner's picture

I see Goldman Sux is down 4% today. Are they shorting themselves? Calling RoboTrader -- do I BTFD?

Thu, 05/12/2011 - 13:31 | Link to Comment Sudden Debt
Sudden Debt's picture

IT'S A TRAP!!!

 

IAD!! IAD!!!

 

Thu, 05/12/2011 - 13:29 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Thanks for timely commentary. IMHO the ES immediately ramped up because traders think that:

  • Cash will come out of bondfs and into equities.
  • The debt ceiling has been de facto breached. For all the REP hot air regarding not increasing the debt ceiling...they will have no choice but to do so begrudgingly.
  • The Fed and lil Timmy do whatever they want and then use the Soros backed Lame Stream Media to market their kleptomania to the masses.
  • I am betting that this move up won't does not have legs. Tight stops of course....ahem.  
Thu, 05/12/2011 - 13:57 | Link to Comment sbenard
sbenard's picture

Your comment made more sense to me than anything else on this page. Thanks!

Thu, 05/12/2011 - 13:34 | Link to Comment PaperBear
PaperBear's picture

Gold is up $30 from today's low right now.

This was a bad auction so it should continue up.

And should Bernanke start speaking it should continue up some more.

Gold/silver are not the bubbles you are looking for, Darth Vader minions.

Thu, 05/12/2011 - 13:36 | Link to Comment magpie
magpie's picture

"Somewhere, in an undisclosed location over the debt target..."

Thu, 05/12/2011 - 13:39 | Link to Comment mayhem_korner
mayhem_korner's picture

DXY is peering sub-75 once again.  Portends a whole snoot-ful of 8-shot tomorrow from the margineers.

What fun!

Thu, 05/12/2011 - 13:39 | Link to Comment kelvin
kelvin's picture

I am not much of a bond market person eventhough I have some idea about it.  Could anyone explain to me about Direct and Indirect bidding and its significants?   Thanks.

Thu, 05/12/2011 - 13:41 | Link to Comment sbenard
sbenard's picture

OK, I confess! I don't think I will EVER really understand the debt/bond/treasury markets!

Someone, please recommend a book!

That said, my charts are suggesting that this may be a good time to short this market!

Thu, 05/12/2011 - 13:43 | Link to Comment PaperBear
PaperBear's picture

This bad auction is the reason for the recent bashing of the commodity sector.

Thu, 05/12/2011 - 13:48 | Link to Comment sbenard
sbenard's picture

Honest question: Could you please elaborate? Thanks!

Thu, 05/12/2011 - 14:00 | Link to Comment mayhem_korner
mayhem_korner's picture

Bad auction = symptom

Root problem = FRB needs to "trick" investors into buying Treasurys, and create momentum for a pull out of monetization. 

Strategy = attack commodities through coordinated margin hikes to force speculative $$$ to seek other vehicles, namely overpriced stocks and Treasurys

Predictable Outcome = Fail; QE3 commences right after the fireworks as no one is there to sop up the unending debt...BUT, the stock market WON'T rebound this time

8-o

Thu, 05/12/2011 - 13:42 | Link to Comment baby_BLYTHE
baby_BLYTHE's picture

the chaircreature needs to give another speech so Gold and Silver can get some support!

buy buy buy!

Thu, 05/12/2011 - 13:47 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

YouTube - Gold Price Song

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

PPT

Thu, 05/12/2011 - 13:45 | Link to Comment PaperBear
PaperBear's picture

If the banksters do not get out of the way of the silver freight train then they will transfer more of the stolen wealth to the holders of physical silver - WOOHOO.

Who wants the banksters to get out of the way ?

Let them get smacked into oblivion.

Winning.

Thu, 05/12/2011 - 13:53 | Link to Comment legal eagle
legal eagle's picture

If we only lived in a country who believed in (1) rule of law (2) self-determination, and (3) democracy, well, we would live in the US in the 1950s.

Thu, 05/12/2011 - 13:57 | Link to Comment Waffen
Waffen's picture

Can anyone translate this into english?

Thu, 05/12/2011 - 14:17 | Link to Comment camaro68ss
camaro68ss's picture

into English= the start to the end of Emrika

Thu, 05/12/2011 - 14:06 | Link to Comment Amish Hacker
Amish Hacker's picture

Aren't the PD's stuck with their 58.2% of the auction, now that they can't flip them back next week to a penniless Fed?

Thu, 05/12/2011 - 15:37 | Link to Comment rufusbird
rufusbird's picture

one could argue that with more limited future auctions and less supply, that demand will be stronger than supply and they could sell at a premium to the auction price in the near future. ( I personally wouln't touch them )

Thu, 05/12/2011 - 15:35 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

the FED has an invention called the printing press...

they will buy these bonds b4 the 3rd day fadeth into night eternal...

Thu, 05/12/2011 - 14:26 | Link to Comment Miles Kendig
Miles Kendig's picture

The risk off, flight to quality trade in ON !!! 

LOOOOOOOOOOL

30yr UST - The dope no one at the party wants.  Hurry Timmay and market those 50's and 100's while the sledding is so fat.  Speaking of fat sledding Timmay, when are you gonna haveta post up the Brooklyn or Golden Gate bridge for your paper?

Thu, 05/12/2011 - 14:33 | Link to Comment SheepDog-One
SheepDog-One's picture

'And why this market surges on what is a collapse in the long end is beyond us'...all I can say is welcome to the New World Order.

Thu, 05/12/2011 - 15:05 | Link to Comment topcallingtroll
topcallingtroll's picture

Scary. I hope it is all priced in.

Thu, 05/12/2011 - 16:54 | Link to Comment dcb
dcb's picture

anyone thinks this weeks market weakness coud be so the fed could sell bonds

Thu, 05/12/2011 - 19:45 | Link to Comment dbradsha
dbradsha's picture

Over $2 pre market bottom to top on SPX, there is no market weakness.Just buy anything you can't loose. Ben'll see you ok. OK ?

Fri, 05/13/2011 - 01:45 | Link to Comment Urban Redneck
Urban Redneck's picture

Perhaps for his next news conference Ben could borrow a suit from Matthew Lesko and peddle US debt instead of insane economic ideas.

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