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$32 Billion 3 Year Auction Prices At 1.349% As Foreign Bid Plunges And Fed Indirectly Pockets 62% Of Issue

Tyler Durden's picture


Today's 3 Year bond auction priced without much fanfare, and luckily so: while it came at 1.349%, slightly weaker than expected (1.345%), compared to last auction's 1.027%, ot a 30% jump in interest in one month, it is the internals that were most disturbing. The Bid To Cover was strong enough at 3.01, compared to 3.06 previously, and 3.14 LTM average, yet what was remarkable was the takedown. And as we have been warning for a while now, it was the Indirect Bids (the Chinas of the world) that basically decided to take a raincheck on the auction. The Indirect takedown was just 27.6% of total, with $8.8 billion of the $32 billion going to Indirects (nonetheless the hit rate was 57%). This is the lowest Indirect takedown since May of 2007! And while the direct bid was a subpar 10.1%, it was the Primary Dealers that saved the day: at 62.3%, or $20 billion of the entire auction, the Fed essentially monetized two thirds of the entire auction de novo. And remember this Cusip: QH6: we can guarantee that within a month, the Fed will buy back at least 50%, or $10 billion, of the Primary Dealer take down portion.

On the chart below note the precipitous drop off in Indrect interest (red), and the surge in Primary Dealer take down (blue).


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Tue, 02/08/2011 - 14:16 | Link to Comment trav7777
trav7777's picture

why would anyone really want to bid when the price is being propped by the Fed?

Tue, 02/08/2011 - 14:38 | Link to Comment unwashedmass
unwashedmass's picture


ya think the foreign buyers might be picking up a little gold instead?

or silver?

ya think?

Tue, 02/08/2011 - 14:20 | Link to Comment docj
docj's picture

And can we assume that - what? - 90% of this will be monetized over the next week or so?

Tue, 02/08/2011 - 14:22 | Link to Comment astartes09
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Several floors of Ivory Coast's finance ministry building were gutted and untold numbers of financial records destroyed after a fire broke out at the multi-storied office.

Flames reportedly tore through the building at around 1200GMT on Tuesday, when many employees were on their lunch break.

"We went to eat and people called us to say that our building was on fire," treasury worker Aicha Kone, one among the hundreds watching the blaze in the country's largest city, Abidjan, said.

The fire engulfed five floors of the building before being brought under control by firefighters.

Fire and rescue officials refused to speculate on the cause of the fire, which comes as incumbent leader Laurent Gbagbo - who refused to step down after UN-ratified results showed he lost November's presidential election to Alassane Ouattara - is facing increased economic pressures, as international sanctions begin to bite.

The Central Bank of West African States last month cut Gbagbo off from state coffers in an attempt to loosen his grip on power - to which Gbagbo responded by seizing the bank's offices across the country. The crisis has led Ivory Coast to default on an interest payment for its $2.3bn bond.

Mediators have condemned perceived attempts by African nations to take sides in the power struggle, as a South African warship floats in the waters off the coastal nation.

'The solidarity that started among us in the international community is fast being eroded,' James Victor Gbeho, president of West African bloc ECOWAS, said.

South African officials said the vessel, anchored in international waters for the past two weeks, was not arming either side in the tense standoff - and was available as a venue for negotiations.



Evidence destroyed sir, awaiting further orders.


Tue, 02/08/2011 - 14:36 | Link to Comment Joe Davola
Joe Davola's picture

Shoot, I guess they'll never transfer that $7,500,000 dollars to my checking account now that the records of my long lost uncle, who may or may not have have visited the Ivory Coast once, they told me about in that email are destroyed.

Tue, 02/08/2011 - 14:24 | Link to Comment Lone Mad Minute...
Lone Mad Minute Medic's picture

Looks like more debt for dinner tonight. It's the low calorie type so it has to be good for us. Right?

Tue, 02/08/2011 - 14:39 | Link to Comment plocequ1
plocequ1's picture

Ah man, What ever works. If the Feds 4 musketeers dont get an "ERROR!!!" message on their terminal, Then i assume its all good. Rally on and ignore that once revered concept from the Adam Smith era called math. It was once said that math is logic and logic is the battlefield of the mind. Looks like Logic and math both lost the battle

Tue, 02/08/2011 - 14:29 | Link to Comment oogs66
oogs66's picture

So it continues, the only asset class QE2 can't prop up is the treasury market.  Almost mind boggling.

Tue, 02/08/2011 - 14:35 | Link to Comment Prof Gulliver
Prof Gulliver's picture

The bond market is too big to manipulate. If Bernanke keeps this up, the bond vigalantes will destroy him -- and us. He is approaching a dangerous tipping point. The bond market is the real potential black swan, but The Bernanke may be too dense, stupid or arrogant to see it.

Tue, 02/08/2011 - 14:40 | Link to Comment unwashedmass
unwashedmass's picture

he's an academic. he never traded a damn thing. he is making the rooky mistake of adding to his mistakes....

thinking its all going to come out okay.

Tue, 02/08/2011 - 15:05 | Link to Comment ivana
ivana's picture

2y +9,4% after several days of steady growth
go ben go ... off the cliff ...

than call ws bastards to collapse new part of crony system to take rates down ... announce new qe342 ... than watch rates for few weeks... if doesn't respond accordingly ... then fire up the world and hike usd.

Tue, 02/08/2011 - 14:32 | Link to Comment Joe Davola
Joe Davola's picture


Tue, 02/08/2011 - 14:33 | Link to Comment John McCloy
John McCloy's picture

Get em while they are hot. Any ideas on when the PD's are taking down 80% of the offerings in the near future? 3-4 years?

Tue, 02/08/2011 - 14:36 | Link to Comment Traianus Augustus
Traianus Augustus's picture

Another bad joke at the expense of the american taxpayer.  Too bad most people don't get it and can't be bothered to have it explained to them.

Tue, 02/08/2011 - 14:39 | Link to Comment Archimedes
Archimedes's picture

In other news: Core Logic says housing prices fell in December and are only 0.07% above the low set back in March of 2009. So in January the housing Market will probably reach a new low. And with the 10 year about to kiss 3.7% this trend lower will continue. Where is Cramer when you need him...

Tue, 02/08/2011 - 14:42 | Link to Comment rubearish10
rubearish10's picture

The question is "Why would any investor buy US Treasury's, knowing, the largest holder could turn seller"? Ben will wait for the last minute to every imply that. By then, it's way too late.

Tue, 02/08/2011 - 15:03 | Link to Comment redpill
redpill's picture

Bernagbo says everything is fine, move along

Tue, 02/08/2011 - 15:06 | Link to Comment lsbumblebee
lsbumblebee's picture

Don't forget that even 27.8% is probably an overstatement.

Tue, 02/08/2011 - 15:21 | Link to Comment SashaBelov
SashaBelov's picture

Well, its only important that stocks are melting up again. What a farse! And what a dive it's gonna be, when stupid fund managers will see first 4% dip with noone let to buy it, cause everyone is already on the margin.

Tue, 02/08/2011 - 15:48 | Link to Comment SayTabserb
SayTabserb's picture

Well, TD, you've been tracking this baby from the beginning. Highly significant that it's been since May 2007 that the Indirects have been this hands-off. Very ominous. Seriously, how can The Bernankagabe possibly "exit" QE? If the Kool-Aid Kids in the PD Club think that The Bernank will not buy back a long-ton of this paper over the next month, are they going to pony up 62%?  So the Chinese are taking a powder until the rates match their inflation, the PDs go away - and what is The Bernank left holding? I mean, besides that? You nailed it, TD Wizard. Bernanke is in a box now - can't exit, can't stay in. He should have told The Jeethner long ago that there's just no way to finance all this crap so deal with it. Instead of being a hero. Too late now.

Tue, 02/08/2011 - 16:33 | Link to Comment asteroids
asteroids's picture

OK, stock is up 30%. Now you sell it. What's the tax on the capital gain and were does it go?

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