$35 Billion 3 Year Bond Auction Closes At 1.055% High Yield, 3.20 Bid To Cover, Highest PD Takedown Since May 2009

Tyler Durden's picture

The US government is another $35 billion in the debt sink hole. The cost of this marginal addition to our existing debt load ($10 trillion? $100 trillion? who cares) was just 1.055%, which was gobbled up briskly at a 3.20 Bid To Cover. The bulk of the buying came from Primary Dealers who took down the highest portion of the auction, or 45.1%, since May of 2009, when PDs were responsible for 56.6% of the takedown. Indirect bidders, coming in at 40.6%, was the lowest indirect take down since January, when they were responsible for just 38%. The balance of 14.3% was left to the Direct Bidders. The Bid To Cover at 3.20 came in well above the LTM average of 3.03%.

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merehuman's picture

on into infinity, dollar daze

Misean's picture

It's awesomely swaptacular!

fuu's picture

Was the $95 Billion today all new issuance or was some of it rolling? Seems like a lot of money for a Monday. Then again they didn't do much the last 2 weeks really.

Sam Clemens's picture

Who are these "primary dealers"?  And what is implied by an increase in the percentage of primary dealer takedown?

Cheeky Bastard's picture

Is it really that fucking hard for you to Google "primary dealers" but in any case; here you go; full list. 

BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J. P. Morgan Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets Corporation
RBS Securities Inc.
UBS Securities LLC.

PlausibleDenial's picture

Yes, but Cheeky, in California a primary dealer just, I say just, may have a different definition.  Now take er easy budroe.  Smoke em if ya gottem..... 

velobabe's picture

 wink wink


DrinK DrinK

Panafrican Funktron Robot's picture

The primary dealers are generally large banks and investment firms (ex. B of A, Citi, JPM, GS, Deutschebank, Nomura, etc.).  The mechanism in play domestically is that they're borrowing money from the Fed at close to 0%, and then buying T-bills at anything higher than their fed funds borrowing rate.  It's basically free, easy profit.  This is the big reason why there is an abnormally high interest in T-bills. Additionally, they can use these T-bills to pad their reserve ratio, as they are considered "as good as cash" for the purposes of reserve calculations. 

Pretty fucked up, isn't it?

Cheeky Bastard's picture

Ditto; plus they are required to bid in all auctions. Thats one of the requirements the FED sets when you have a "primary dealer" status. 

Gordon_Gekko's picture

Yeah, basically they are Fed's bitches.

TLT's picture

Or the FED is their bitch?

Truth is, they're the same corporation.

jkruffin's picture

Yeppers, as a primary dealer there is a minimum bid that must be made for all of their scrap paper.

Cognitive Dissonance's picture

"Pretty fucked up, isn't it?"

Only for most of us (the one's with the sore bums) looking in. For the Primary Dealers, it's party hardy time.

My quarter century old son is a smart cookie, yet he sort of shrugs his shoulders when we talk about this, even though those shoulders are going to be forced to deal with this insanity. He talks to his friends about these issues and they don't really care.

Their apathy comes from the feeling that they are screwed anyway. They don't expect SS or pensions to be there when they get around to retiring. They feel the "grups" (grown ups) are out of control yet still in control. My son tells me his peers feel they're powerless and hopeless, so they might as well enjoy life until life gets very very hard.

I have mixed feelings with this response. But considering my generation is not acting responsible, why should I expect my son's generation to accept responsibility?

mephisto's picture

My father has been telling me for years that there will be no pensions and little healthcare left for me. Smart advice. But what would you do with it if someone said that to you at 20 yrs old? Coming up with any answer at all isn't easy. IMO the responsibility it takes to even ask the question usually comes later in life, maybe when you have your own to look after.

And what's the responsible answer anyway, when it's never been this bad? In order of destructiveness

1. Shut up and pay your taxes like you're told

2. Quietly look after yourself and your own, ignore the government

3. Passive disobediance

4. Riot

5. Get an economics phd and join the Fed.


poor fella's picture

"grups" - haha - Trekkie reference. These people are adults?

What's funny to me is that I picture Timmay and Bennay playing tea-time. Tim thinks that what he does affects the economy the same way a child pours the imaginary tea and the adults play along and drink from empty cups. Tim and Ben will play the game because it's the only rules they know - 'hopefully' in their minds we'll all follow along and things will be better....

That's THE plan. THE ONLY plan. We'll have to see if us adults can be coerced to play along.

SayTabserb's picture

It's brilliant, in a way.  A mechanism for loaning into existence money we don't have at a very low cost, with the system perpetuated by the reality that the overall world economy is so messed up, courtesy of the same Primary Dealers, that there aren't that many real alternatives to Treasury investment.  Thus the ability of the Fed to continue loaning money into existence at ridiculously low cost is limited only by an upper bound where 1-3% of the total public debt becomes prohibitively expensive as part of the overall budget. For example, if the public debt becomes $30 trillion, then an average cost of say 2% is still only $600 billion a year, which can be easily managed by cuts in the Pentagon budget and the elimination of any remaining social safety nets.  We've done it, an end run around the Second Law of Thermodynamics.  It's a proud day in America.

Cognitive Dissonance's picture


Nature has a way of biting you in the ass when your back is turned. The Fed's perpetual motion machine might look like it really does work. But sooner or later, those hidden power sources will end or be ended and suddenly all that built up friction will bring the system to a rapid stop.

SayTabserb's picture

Oh heck, what a buzzkill.  Well, I was coming down off the caffeine anyway. Back to the econophysics lab.

Bonesetter Brown's picture

The mechanism in play domestically is that they're borrowing money from the Fed at close to 0%, and then buying T-bills at anything higher than their fed funds borrowing rate.  It's basically free, easy profit. This is the big reason why there is an abnormally high interest in T-bills.

I gotta take issue with this meme. That was the story 12-18 months ago, but not today.  Excess reserves grew to an elevated level and then hit a plateau.  I think they've actually decreased in the last report or too.  So the effect is still there, but it is no longer making a marginal contribution.

There is a different reason for the renewed, abnormally high interest in T-bills.  Double dip? Continued Eurozone problems?  (Granted, those are probably one and the same)

Bernanke has to be worried about increases in spreads.  I wouldn't be surprised if the 10yr at 3% has him thinking about selling Treasuries and buying some other asset, holding Fed balance sheet size roughly constant.

Germany is not on board with the Fed's gameplan, and I suspect that is what has everyone nervous, and hence loading upon on Treasuries.

mephisto's picture

True for new trades, but when your books are stuffed with govt bonds and the yield goes where it has, you don't need much more. Any losses can be borrowed back from the Fed at zero anyway.

Had MS research been right and the yield gone to 5%+, they would have been hurting. Bernanke can't sell the treasuries now, if he does then surely the yields increase and all the banks which employ him take massive losses. He's stuck.

Agree completely with your call on Germany - it's the lack of consensus which is frightening and has been since the G20. 

Bonesetter Brown's picture

Benny and the banks can prolly tolerate the 10yr at any number that starts with a 3.  They hold a lot of stuff on the books at >3.5%.  Steep yield curve is good for the banks' gross margins.

Net-net: lots of margin on the 10yr right now.  Action on other assets including Euro debt is the worry right now methinks.

Troublehoff's picture

what amazes me is that this appears to be a licence for these guys to print money and yet they still managed to end up fucking insolvent and bailed out with taxpayer money..

it really is too sickening for words - and yet nobody I ever speak to even gives a shit or wants to hear about it... they'd be pissed enough is somebody walked into their house and took their TV but this doesn't seem to register

i guess people just secretly like getting financialy raped

Gordon_Gekko's picture

In other news, Switzerland just showed the middle finger to the USSA and its puppet president Obozo by refusing to extradite Polanski.


Cognitive Dissonance's picture

When you can't challenge the bully face to face, you shoot spit balls when his back is turned. Who said entire countries can't be passive-aggressive?

MachoMan's picture

It's either that or set up a maginot line...

SayTabserb's picture

What's kind of funny, in a hoist-on-your-own petard way, is that Holder's DOJ, with its fetish about keeping everything "secret," refused to disclose to the Swiss whether a hearing in 2010 confirmed Polanski's argument that at his sentencing he was assured that his time spent in a psych facility would constitute full time served.  More State Secrets, I guess!  Due process is now a secret too, one supposes.  Didn't help this time. Payback's a bitch, Eric!

Sam Clemens's picture

Appreciate the informative responses, but in all honesty, the "historical chart" as it is labeled is essentially worthless.  It goes back 16 months.  Not very historical.  Without knowing the composition of say...the last 5 years, I'm not sure how much can be drawn about this mix of bidders.  Unless, of course, you already have that knowledge in your head somewhere.  However, as Cheaky Bastard implies, one could just use google for the answer to every question one has...its all fact on google, as we all know.  Using this chart, the rate of increase in direct bidders is the most obvious.  Using linear regression, everything else is fairly noisy given the short time frame of this "historical" chart.

Tic tock's picture

Print as much as you like...

Temporalist's picture
China Ratings Agency Downgrades US Debt From Moody's, S&P's, and Fitch's AAA Rating


"Currency wars. Well at least a Phony War for now. See, nothing has happened. All is well. Move along. Nothing to see here. Status quo intact.

The US sovereign debt gets a stiff downgrade, cut down from number one in the world, to a distant thirteenth place by China's Dagong Credit Rating Agency.

Governments like China do not take actions like this randomly, and their quasi-state organizations do not march to the beat of their own drummer. It will be interesting to watch this develop, and calculate the strategy, to figure out the next steps."


jkruffin's picture

This on top of another $60 Billion in 91 day and 182 day chunked into the markets today as well, that went off at .15% and .20% repsectively.  There was huge primary takedown again here as well.  The FED continues to waste dollar after dollar on low paying treasuries, and they have to, because no one else wants this crap more than 28 days at these rates.

trav7777's picture

TARP was to liquify the PDs so that they could do what is occurring as we speak.  Eventually, PDs will end up being 100% if they aren't already