Dealers Flip 50% Of Entire Just Completed "Very Strong" 3 Year Auction Back To Fed's Brian Sack

Tyler Durden's picture

Last month, the 3 Year bond auction conducted on May 10 was memorable for 3 reasons: it was the auction that breached the US debt ceiling, it priced at 1.000%, and came at the third highest Bid To Cover in history, despite a decline in Indirect participation. Basically the auction was a massive success primarily due to the Primary Dealer participation, which took down 51.9% of the entire issue, or $16.6 billion of $32 billion. We predicted, accurately, that "Naturally, none of this due to actual demand, but merely due to Primary
Dealer expectations of a prompt and profitable flip back to Brian Sack... Look for Cusip QM5 to be briskly monetized as soon as the next 3 Year
POMO is announced, when the next POMO schedule is revealed tomorrow at 2
." Well the schedule came and went, and following today's just completed $6.4 billion POMO, we see just why all recent bond auctions continue to price at such phenomenal internals: at today's POMO the On The Run QM5 accounted for 3.189 billion of the entire $6.397 billion, or exactly 50%. This follows the May 24 POMO at which QM5 represented $5.14 billion of the total $6.4 billion. In other words, less than a month later, PDs have flipped out of $8.3 billion, or exactly 50% of the entire Dealer allocation at the auction. Basically, had the Dealers not had the backstopped certainty that the Fed would gladly gobble up whatever 3 Years they had for sale, and if heaven forbid, they would be forced to keep $8.3 billion in capital yielding just 1.000% on their books, the auction internals would have been vastly different. But such is life when monetization continues... for another 3 weeks until the POMO barrage ends on June 30. For all those praising the strength of each and every auction, perhaps it would be prudent to wait until July 1 and see just how much interest Dealers have when they don't have the Fed in their back pocket buying up half of the entire auction takedown...

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Bob's picture

Bullish for the Russell 2000!  It's gonna be an interesting month . . . maybe. 

plocequ1's picture

Translation: Buy NFLX and other Brian Sack goodies

tickhound's picture

Treas to PD to Fed, Treas to PD to Fed, Treas to PD to Fed...

Continued strength in "Worldwide" demand for US debt.

PS No more large zh t-shirts :(

However, large in stock for "evil speculator" t-shirts... Cuz I'm a proud evil speculator

urbanelf's picture

Can you feel the hyper-wealth effect yet?

jus_lite_reading's picture

Just wait until Wed/thursdays flip that bond show..... its gonna be a show.... they are gonna buy $10 B in bonds those two days...

Josh Randall's picture

Meanwhile back on the ranch...Silver spot price creeps ever so closer to The Morgue's stock price

Boilermaker's picture

Slam that shit into the REITS...stat!  Otherwise, they might end up negative for the day!

So Close's picture

Things I am watching/weighing.....  in no particular order..


1.  First bond auction with no POMO.

2.  Comex silver inventories goto 0.

3.  Equity market reaction to end of POMO

4.  Debt ceiling negotiations.  Proposed budgets vs. actual spending

5.  PIIGS evolution

6.  QE3 announcement after it is begged for...  or whatever they are going to call/style it.

7.  Random weekend annoncements in margin hikes/drop etc.

Did I miss anything?

tickhound's picture

Strategic defaults (higher end) on mortgage loans as payments reset and the corresponding growth in the shadow inventory?? 

Raymond Reason's picture

8. Price of wheat.  (They manipulate this at their own peril.)

Manthong's picture

Commercial Real Estate final obituary (after Godzilla rabbit invasion)

Amish Hacker's picture

3. (a) Equity market reaction to evacuation of Tokyo.

FranSix's picture

Last night 6-month and 1-year treasury bills yields went below the three month treasury yield. Did you know that? B-b-b-bitchez?

RobotTrader's picture

Looks like a V-Bottom in XLF and RKH today.

Other consumer names like DELL, SBUX, etc. pretty strong.

TorchFire's picture

Soon they will just have a ceremonial auction at the Bernank's desk.


New Normalist's picture

And tell me why nobody is going to jail for this again???

hedgeless_horseman's picture

Because it is a secret.  Do you read this stuff anywhere else?  No.


Disclosure Statement: 

Long: /Tyler_Durden

AbandonShip's picture

This is insane.  If any fixed income "trader" at these banks gets so much as a Oreo cookie for his/her Feb bonus it will be too much.  I can replace half these clowns with 20 lines of Java code. 

RobotTrader's picture

I have never seen quite the mania in short term T-bills.

Everyone clamoring for 12-mo. Uncle Gorilla Notes at 17 b.p., when DVY is yielding 3.60% and has the strongest diversified basket of dividend stocks.

Wow, what a disconnect.

topcallingtroll's picture

I Dont understand either, unless the market anticipates severe deflation ahead.

trav7777's picture

so those expecting a rate increase or exit plan from the Fed or no QE3 the hell does the USG fund without QE?

Without Brain Sachs buying a huge chunk of issuance, don't rates go to 10% and the bonds collapse overnight?

topcallingtroll's picture

It is going to be a yawner come july first.

The usual suspects will bend over and take as much as we tell them to take.


GeneMarchbanks's picture

I fear for the republic...


Wait wait! I got one... How much more can Brian's Sack absorb! qctm (quietly chuckling to myself)

And, Yes Tyler you can use that one.

fuu's picture

That's just how they roll.

White.Star.Line's picture

I don't know much about the complexities and ramifications of bond sales and buybacks, but I do know that swallowing one's own piss to quench your thirst or eating your own dung to satisy your hunger eventually ends badly.

docj's picture

Lather. Rinse. Repeat...

... for about 3-1/2 more weeks.


... they'll change shampoo brand and start the cycle all over again.

Because they're not going to detonate instantly the only thing keeping the Fed.Gov in the delusion of solvency.

Ugh: this was meant to be a response to trav upthread.

Prof Gulliver's picture

They're still shampooing even though they don't have any hair left.

slewie the pi-rat's picture

so much bad news, so little time...

are we having a bit of a june swoon, here?  hehe.  julian d.w. phillips [gold&silver daily market commentary]:  We look around the globe of some economic good news that will bring solid hope and can’t find a significant amount. 

is "the globe" beginning to realize that the banksters have hijacked it's entire econom, which now appears it will just go tits up if the the CB's do not keep it somewhat stimulated? 

cow tipping, anyone?

oogs66's picture

bonds trading at 100.75 so 3/4% on 3.2 billion.  Not bad work if you can get it.

Havana White's picture

"That's just how they roll." For some reason this is amusing me to no end. Thanks.

drivenZ's picture

does anyone have the numbers on what they're selling them back at? Or maybe justed a blended avg price for the month on that issue? 

Amish Hacker's picture

Free money to the PD's for assuming zero risk for 30 days. How big a spread do they get paid for their services? It's not our place to ask.