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Dismal $16 Billion 30 Year Auction Closes At 4.720%, Record Direct Take Down Of 24.07%

Tyler Durden's picture


Horrible 30 year bond auction in which not only did the bid to cover plunge from prior auctions, not only was the tail very big, but the Direct take down (24%) was almost as high as the Indirect (28.5%). Something is very wrong with the demand dynamics of the long-end, as we have long speculated.

  • Yields 4.720% vs. Exp. 4.687%
  • Bid To Cover 2.36 vs. Avg. 2.54 (Prev. 2.68)
  • Indirects 28.5% vs. Avg. 41.07% (Prev. 40.77%)
  • Indirect Bid To Cover: 1.44
  • Allotted at high 61.57%
  • Direct Bidder Take Down: 24.07%
  • Indirect Bidder Take Down: 28.53% - foreign buyers are fleeing, with the average of the last four auctions coming at 39.9%.

Algos care not that we just had as close to a failed auction as possible.


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Thu, 02/11/2010 - 14:15 | 227021 jmc8888
jmc8888's picture

Santelli gave it an F FWIW

Thu, 02/11/2010 - 14:33 | 227075 Crab Cake
Crab Cake's picture

"worrying about USTs---that is a worry Bernie boy does not want."

Yet it is a worry that Bernie himself insured.


We could have firewalled the government, enforced justice and transparency, and eaten the depression twice in the last decade.  Those opportunities are now gone.

Now. Now it's only a matter of time.  The sovereigns took the poison pill.  Depression hurts everywhere. 

Thu, 02/11/2010 - 14:51 | 227120 Bam_Man
Bam_Man's picture

I am buying zero coupon Treasuries hand-over-fist right now. YTM right now on the 8/15/2029's is almost 4.90%. Buying at a 62% discount means that once deflation finally kicks in, the capital gains will be enormous.


Thu, 02/11/2010 - 17:38 | 227411 Anonymous
Anonymous's picture

buying what are tantamount to worthless paper instruments, hands over fist huh? hmm, is this wise?

Thu, 02/11/2010 - 19:12 | 227534 johngaltfla
johngaltfla's picture

Unless of course BB announces that due to the CRE issues and further deterioration in the residential markets he announces another $1-1.5 Trillion in QE....

Thu, 02/11/2010 - 20:31 | 227691 FLETCH
FLETCH's picture

Be careful with your base assumptions here

we have not seen a situation in the last 50+years where we have deflation at the same time that a "creditworthiness" risk premium is forced onto UST's.  this is beyond the worldview of most Keynesians, but it is indeed a possible outcome.  The UST could be victim to this "risk premium" forced upon it by the market, out of the control of the Fed, due to an enormous funding gap created by the mismanagement of the government.  it is well known that total world savings +money printing (w/o hyperinflation) cannot meet the total sovereign debt needs of the next years.  this is also why we will have QE II soon, as the fed faces up to the reality that the bond auctions will start to become weaker and weaker

don't make the mistake of thinking that deflation means low rates.  to understand more, read some niall ferguson or this site.

Fri, 02/12/2010 - 04:18 | 228158 chindit13
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While I am in agreement that we can easily have deflation AND high nominal and real interest rates, the situation may be a long time in developing.  Japan is the example:  deflation, horrible deficits, near permanently low rates and a tumbling domestic savings rate....yet JGB's refuse to break and Japan's yield curve is much flatter than the US curve.

My favorite long term trade remains a combo of short JGB's/short yen.  It seems eventually one (or both) has to give.

Thu, 02/11/2010 - 14:53 | 227123 Oso
Oso's picture

deflationist in me is saying the exact same thing.  I bought a little more, i just dont see yields going up very far.  We are still above my cost, but i have to say, i am watching this VERY closely.


money in risk just doesnt make any sense, despite the auction results.  there is no real inflation anywhere, i cant even count the number of instances where I see prices being cut.

Thu, 02/11/2010 - 14:58 | 227133 Daedal
Daedal's picture

The question is, though, what will happen if there's a funding gap? Deflation argument makes sense, but if Government has obsene spending obligations, where is that money coming from?

Perhaps ZH should revisit this post:

Thu, 02/11/2010 - 14:20 | 227035 Don Smith
Don Smith's picture

OK, OK, who are the directs (isn't that ordinary people bidding directly to treasury?) and why does it smell bad that the direct bid is high?  Does that just mean there are fewer foreign bidders and primary dealers buying them?

Thu, 02/11/2010 - 14:44 | 227099 Mr Lennon Hendrix
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"Direct bidding, or Treasurys bought directly through the government, was 24 percent, considered a high number and indicative of weak foreign demand when compared to the indirect bid done through dealers of 29 percent."

Thu, 02/11/2010 - 14:22 | 227037 IveBeenHad
IveBeenHad's picture

very interesting how quickly the indirects are fleeing the long end. was it really all china occupying that space and if so where are they going w/ the dollars ? 

is it possible that china is bidding directly now thru some onshore entity like the NYFED? 



Thu, 02/11/2010 - 14:22 | 227041 Cognitive Dissonance
Cognitive Dissonance's picture

<sarcasm on>

Not to worry. I can ignore bad news longer than you can stay solvent.

<sarcasm off>

Thu, 02/11/2010 - 15:00 | 227137 mikla
mikla's picture

+1  LOL!

Thu, 02/11/2010 - 14:24 | 227046 Fidel Sarcastro
Fidel Sarcastro's picture

WTF - even the 30-YR bond futures are 12 ticks off the low!!

You'd think it would be down -2.00 or more.


Thu, 02/11/2010 - 14:24 | 227049 buzzsaw99
buzzsaw99's picture

algos do what they want, mmm hmm.

Thu, 02/11/2010 - 14:25 | 227051 Alitak
Alitak's picture

Please correct me if I am completly wrong, but can the Directs' not be Ben himself?

Thu, 02/11/2010 - 14:31 | 227066 Fidel Sarcastro
Fidel Sarcastro's picture

imho, yes indeed it is Zimbabwe Ben

Thu, 02/11/2010 - 14:25 | 227053 wprosser
wprosser's picture

same as yesterday.... hmm... dollar rally...

Thu, 02/11/2010 - 14:26 | 227056 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Thu, 02/11/2010 - 14:36 | 227081 SayTabserb
SayTabserb's picture

Paul Craig Roberts, who admittedly gets worked up into a lather pretty easily, surmises that our 3 years of deficits, last year and these next two, require $4.3 tril of bond sales to cover.  He speculates there isn't enough excess trade surplus in the known world to cover that kind of debt.  So there's really no choice but to inflate our way out, or to default.Methinks this "Direct" takedown is more trickery, such as the Fed using proxies that it is emailing digital money to.

Thu, 02/11/2010 - 14:46 | 227107 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

PCR saw the wrapping of the carry trade from 50 miles out. 

Thu, 02/11/2010 - 14:37 | 227083 girl money
girl money's picture

Direct bidder has to be a plug, bet it's not even a purchase... it's just Ben putting the storebought cookies back in the box to try again at next week's bake sale.

Thu, 02/11/2010 - 14:39 | 227087 Anonymous
Anonymous's picture

Hey fellow ZH'rs here is information on the most annoying SPAMMER there ever was, tired of him SPAMMING us on ZH?
Let's all return the favor.

Cetin Hakimoglu
2930 garber street
Berkeley, CA. 94705

Phone: 510-843-1013


Thu, 02/11/2010 - 19:35 | 227584 Anonymous
Anonymous's picture

He had to be from Berkeley - home of some of the worst ideas on the planet and the Capital of the Great State of Fruits and Nuts. I know - I live there.....

Fri, 02/12/2010 - 05:30 | 228174 jeff montanye
jeff montanye's picture

and current home of john yoo

Thu, 02/11/2010 - 14:40 | 227091 carbonmutant
carbonmutant's picture

China has Obama by the short hairs...

Thu, 02/11/2010 - 14:42 | 227095 SayTabserb
SayTabserb's picture

+1.  We are well and truly hosed.

Thu, 02/11/2010 - 14:42 | 227094 turbo.tim (not verified)
Thu, 02/11/2010 - 14:47 | 227108 Anonymous
Anonymous's picture

I've been using 2010 strength in USTreasuries to build more tiers, to my short Gov Bond position. Here is my view on which govt debt is safe: none of it. I couldn't possibly be persuaded that UK debt is worse than US debt, or Grecian debt is worse than German debt. It's all bad. All of it.

Thu, 02/11/2010 - 14:47 | 227110 besodemuerte
besodemuerte's picture

Fuck what I wouldn't give for someone to break this down Cliff Notes style.

Thu, 02/11/2010 - 16:14 | 227276 A tumor named Marla
A tumor named Marla's picture

How much gold you got?

I don't have a clue about any of this either; just thought it was a good joke for this crowd.....

Fri, 02/12/2010 - 01:04 | 228051 Anonymous
Anonymous's picture

When this blows, one's gold is still gold and worth something.

Thu, 02/11/2010 - 18:20 | 227448 defender
defender's picture

I don't do anything in finance so take this with a grain of salt

Yields 4.720% vs. Exp. 4.687% - This is bad.  The treasuries are usually a very flat market with slow moves.  .033% is actually a significant move.

Bid To Cover 2.36 vs. Avg. 2.54 (Prev. 2.68) - The way that the system is set up, any time that the bid to cover is less than 2 is a failed auction.  We are slowly approaching that point.

Indirects 28.5% vs. Avg. 41.07% (Prev. 40.77%) - this is really bad.  Generally this represents foreign bids, and it shows that there aren't any.

Indirect Bid To Cover: 1.44 - this should mean that foreigners bid 1.44 times the amount offered.  This doesn't match the other percentages given though.  With a 2.36 bid to cover, the indirects would have been 61% of the total bids

Allotted at high 61.57% - There is a spread that that is covered on each auction.  If you look at the picture it also shows the low and average price.  Most auctions this number is significantly lower (half).  What really makes this number scary is that SOMA (federal purchases) and direct bids accounted for 35% of the auction.  This means that only ~3% of regular bids were below high (4.720%).  I am amazed that the results weren't worse.

Direct Bidder Take Down: 24.07% - Direct bidders took home 24% of the treasuries auctioned.  This is the Primery Dealers network.

Indirect Bidder Take Down: 28.53% - This is the Achilles heal of the treasuries auctions.  We need to see this number increase (more foreigners bidding) if we are going to have a prayer of funding our rising deficit this year.  Instead it is falling off of a cliff.

Hope this helped.

Thu, 02/11/2010 - 23:12 | 227930 Anonymous
Anonymous's picture

Very helpful. Yes.

Fri, 02/12/2010 - 05:48 | 228178 jeff montanye
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thank you.  why is a bid to cover of less than 2 a failed auction?  how should one interpret the direct bidder take down?  how are the indicated inconsistencies in the indirect (and this means foreign?) data interpreted/reconciled?  thank you again.

Sun, 02/14/2010 - 17:20 | 230865 defender
defender's picture

Sorry that this took me so long to get back to. 

"why is a bid to cover of less than 2 a failed auction?" - Primary Dealers are required to submit enough bids to cover the entire auction.  After this, they bid again for how ever much they actually want.  This means that you have to subtract 1 from the bid to cover ratio in order to find actual demand.

"how should one interpret the direct bidder take down?" - No one knows.  These are bids that someone ("we can not release names blah blah blah") has given directly to the treasury.  The question becomes who has the clout to deal directly with the treasury as a governmental institution.

"how are the indicated inconsistencies in the indirect (and this means foreign?) data interpreted/reconciled?" - sorry, I just don't know the answer to this.  But yes these would be foriegn or very powerful institutions/people.  Primary dealers are listed seperately (bottom of the graphic in the article).

Fri, 02/12/2010 - 05:36 | 228175 jeff montanye
jeff montanye's picture

you and me both.  i have an mba, a cfa and traded treasuries as a trust company portfolio manager for fourteen years and i do not understand the lingo of the treasury auctions.  i feel inadequate but that does not help much.  this is clearly important stuff.  can we please have a tutorial t.d.?

Sun, 02/14/2010 - 22:23 | 231101 loki
loki's picture

Please??  I agree!  I feel sorely lacking in my understanding of treasuries and the auctions...  and I'm nowhere near in the financial field! 


Please???  Please??   I'll even donate *more* to help pay for this education

Thu, 02/11/2010 - 14:48 | 227113 Anonymous
Anonymous's picture

Their takedown of the middle class/retiree is almost complete.

Mon, 02/15/2010 - 11:38 | 231384 janchup
janchup's picture

The takedown of the middle-class is essential to the establishment of a strong centralized state.

Thu, 02/11/2010 - 14:55 | 227124 Anonymous
Thu, 02/11/2010 - 15:06 | 227147 Instant Karma
Instant Karma's picture

I have a guess. Too much supply. QE 2 has set sail?

Thu, 02/11/2010 - 15:08 | 227151 docj
docj's picture

DXY dropping like a stone - AU/AG up vertical - since noon.

Yeah, I suppose that all makes sense.

Thu, 02/11/2010 - 15:10 | 227153 turbo.tim (not verified)
turbo.tim's picture

yes, this crisis will get much worse. march lows to be rboken. currently reading:

Sooo buying all dips may not work afterall

Thu, 02/11/2010 - 15:12 | 227161 Anonymous
Anonymous's picture

Not surprising the stock market is rallying. It is now THE flight to "quality". Actually think we might get a pretty sustainable run right here in equities.

Thu, 02/11/2010 - 15:20 | 227172 carbonmutant
carbonmutant's picture

 No QE2 without buyers.

Thu, 02/11/2010 - 15:31 | 227202 Anonymous
Anonymous's picture

C'mon - fresh buyers "minted" daily...

Thu, 02/11/2010 - 15:22 | 227180 john_connor
john_connor's picture

For those of us on Bear Mountain that just survived the 2nd feeble Bull attack this week, take heart, it is almost time to feed.

Thu, 02/11/2010 - 15:39 | 227220 besodemuerte
besodemuerte's picture

What can you do assure me of this if the dollar gets hit hard on a Greece IMF bailout, and our equities inflate to go step in step?

The dollar and the S&P were perfectly correlated for the last 6 months, what makes you think this won't continue?

Thu, 02/11/2010 - 16:01 | 227243 john_connor
john_connor's picture

There are no assurances of course.  I believe the euro just had its dead cat bounce, today.

Simply a squeeze on the euro shorts.

Thu, 02/11/2010 - 16:11 | 227264 besodemuerte
besodemuerte's picture

Well, it seems all but a done deal that the IMF will come save Greece's day. an IMF bailout worse for the USD or worse for the Euro?

I would guess worse for the USD right?  Since we're the biggest component of the IMF.

Thu, 02/11/2010 - 16:17 | 227286 john_connor
john_connor's picture

I think that is a bit presumptious.  "Technical Assistance" does not mean they are funding.  Frankly, it doesn't really matter.

Thu, 02/11/2010 - 15:40 | 227223 Kurtieboy
Kurtieboy's picture

Seriously, why is anyone suprised?

Thu, 02/11/2010 - 15:47 | 227231 SmartMoneyKL
SmartMoneyKL's picture

How perfect is it that the CUSIP ends in QE1?

Thu, 02/11/2010 - 16:12 | 227267 besodemuerte
besodemuerte's picture

LOL Santelli just mentioned traders on the floor saying it was the PPT as the Direct Bidder.

Thu, 02/11/2010 - 16:19 | 227288 Cyan Lite
Cyan Lite's picture

Horrible?  As long as we have 2 bidders for every seller then we're in good shape. 

Thu, 02/11/2010 - 17:09 | 227369 Anonymous
Anonymous's picture

"traders on the floor saying it was the PPT as the Direct Bidder."Everysoverign will have their turn when the time is right. Just like 2007-2009. Bear>Aig>Fan>FRE>ML>C>BAC. Now it is the turn of soverign. Look for traders to attack each one in turn. Everytime the market goes into overbought territory and then tank,traders will say "oh,it is the Greek debt,or the X debt". As if that debt was not known to the market befor Jan. We have been talking about it since Oct as far as I remeber. And yet markets kept on pushing up,so why all of a sudden,three months later they remebered it now?. I would rather go with the Wavers market theories. Markets drive the news and not the other way around.Only when the market tanked,for purely valuation reasons,people remebered Greece. Next time it would be something else and so on and so forth...

Thu, 02/11/2010 - 19:07 | 227529 Ned Zeppelin
Ned Zeppelin's picture

The deficits must be funded. Tax receipts are insufficient.  Debt must be issued to fund new deficits, and rollover old debt.  If the new debt is not purchased by bona fide purchases, it will be purchased with printed money.  No auction will fail, as the direct bid will simply rise to take over, or a new "indirect" bidder will appear out of the mists, address unknown, but also purchasing with funny money.

next stop: required purchases of USTs by banks with their copious reserves, although that accomplishes a bad thing - removing liquidity (which they might as well, it is not like it is going to be loaned out.) But a back door QE that could take care of a cool $1 trillion of issuance.

Either that, or some form of printing to buy USTs - to the extent there are not enough real buyers, then they will be sham purchases. Period.  It is interesting to note that the supply of USTs may simply outstrip the ability of the rest of the world to even buy them, even if they wanted them.

Of course, the downdraft on the USD is formidable as it becomes clear the printers are running, but perhaps the updraft (deflation piling on, and no alternative reserve currencies in sight) an equal counterbalance. 


Thu, 02/11/2010 - 20:02 | 227632 cantstopselling (not verified)
cantstopselling's picture

Crisis will get worse: good read

Thu, 02/11/2010 - 23:16 | 227926 Unscarred
Unscarred's picture

An even better read for stopping the 'ned' crisis.  (Much more informative, too!)

Fri, 02/12/2010 - 06:18 | 228186 Anonymous
Anonymous's picture

Shouldn't that be... cantstopspamming?


Fri, 02/12/2010 - 05:05 | 228167 TumblingDice
TumblingDice's picture

Even odds for repayment on Feb 15, 2040. Yea or Nay?

The irony is that as long as long as these auctions are bad and the short ones are good the odds of this toilet paper being repaid increase. The worry is this bad auction phenomenon might start to creep closer to the present.

Mon, 04/19/2010 - 10:08 | 307814 Tom123456
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