$38 Billion 2 Year Bond Comes At Lowest Ever 2Y Yield On Record Of 0.665%
Even as stocks continue pricing in QE2 (presumably some time in the next 2 years), bonds keep on laughing. The $38 billion in 2 Year Bonds just auctioned off at a 0.665% high yield, the lowest yield for a 2 Year primary issue. The bid to cover came in at 3.33, compared to 3.45 previously, and 3.15 average. Indirect participation plunged to 32.8%, compared to 41.41% previously. As the directs took down "just" 13.5%, the Primary Dealers ended up taking down a majority of the $38 billion bond auction, or 53.7%. The recycling of cheap Fed money has now fully arrived, and with an Discount Window to 2 year arb of 0.4% (0.66% - 0.25%), it shows just how bad things must be for the PDs.
Due to technical challenges we will omit the traditional bond graph that accompanies these posts. We will resume it shortly: don't worry, there are a few trillion more in USTs to be auctioned off before the Fed lets the charade end.