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Indirects Flee From Poor 7 Year Auction Which Pushes Bond Curve Wider

Tyler Durden's picture




 

Today's final auction of the week just closed in the form of a $29 billion 7 year bond issue (Cusip: QG8). While we will find out whether or not this is the auction that broke the debt ceiling camel's back when everything settles on Tuesday of next week, the internals were downright ugly: the WI of the bond was trading at 2.68% when the auction priced at 2.712%, a surprisingly wide tail into what everyone claims is a risk free asset. As a result the entire curve has been dragged wider on the news. Among the internals, the Bid To Cover came at 2.63, far weaker than both the previous (2.80) and the average (2.79). But the most notable metric as usual was the Indirect Bid, which traditionally strong at the belly of the curve, saw only 39.1% of the auction going to foreign bidders. This compares to 49.31% in the last auction and 51.45% on average. This meant that Primary Dealers, better known as Brian Sack, were forced to preemptively monetize 53% of the auction, and 7.8% going to Directs. Overall a very poor auction, considering that conventional wisdom was that when the Fed launches QE3 it will focus on bonds at the belly and to the right, in order to moderate inflation. Hopefully (for some) this is not a harbinger that the Bill Gross thesis is finally starting to materialize.

 

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Thu, 04/28/2011 - 13:13 | 1216703 NOTW777
NOTW777's picture

someone bot a couple mil of UUP

Thu, 04/28/2011 - 13:24 | 1216777 Clueless Economist
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CNBS is actually quite useful to watch.  No, I am not talking about Steve Liesman's genius, but the commercials.

--I may be in my pajamas now...

--Get Magic Jet or Jack or whatever now

--Bill Schaeffer made a financial gain with his invention, but these results are not typical

--Attention parents and grandparents with Gerber life insurance plan for your newborn

Highly polished and professional commercials keeps me glued to CNBS

Thu, 04/28/2011 - 13:38 | 1216824 disabledvet
disabledvet's picture

i always get the "metal detector" ones.  Like i care.  Kites on the other hand!

Thu, 04/28/2011 - 13:28 | 1216790 slaughterer
slaughterer's picture

UUP, more than 2 million share block bought shortly after 11am.  It seems the Bernanke Buck Bounce was postponed until today.

Thu, 04/28/2011 - 14:43 | 1217091 LowProfile
LowProfile's picture

Hmm...

What happens if the Fed buys shares of UUP?  Pretty sure it meets the toxic asset qualification.

Seriously though.

Thu, 04/28/2011 - 14:45 | 1217096 thedrickster
thedrickster's picture

Forex market is too big, the tail isn't going to wag the dog in this case.

Thu, 04/28/2011 - 15:11 | 1217189 Drachma
Drachma's picture

Long-term trend looks promising.

sarc/off

Thu, 04/28/2011 - 13:55 | 1216895 thedrickster
thedrickster's picture

Have a screenshot by chance? Not doubting you but curious.

 

Thu, 04/28/2011 - 14:45 | 1217095 LowProfile
LowProfile's picture

Check goog or yahoo finance, it shows the volume spike.

Thu, 04/28/2011 - 14:49 | 1217103 thedrickster
thedrickster's picture

I see it, weird.

Thu, 04/28/2011 - 13:53 | 1216707 lolmao500
lolmao500's picture

QE2 fails again... Time for more money for QE3! Can you say 2 trillion in POMO?

Thu, 04/28/2011 - 13:17 | 1216710 Destinapp
Destinapp's picture

Who is going to buy these bonds when QE2 ends?

About half of today's POMO was just issued bonds.

Thu, 04/28/2011 - 14:05 | 1216928 dhengineer
dhengineer's picture

My theory:  they will wait for a significant drop in the bond and stock markets in July, after QEII is declared finished.  Then they will move to "confiscate" pensions and retirement money to buy up the bond issues from that point on, claiming that they were acting to protect the little guy from those nasty market falls that threaten pensions, 401k's and IRA's.  There's, what, four or more trilion dollars just sitting there, ripe for the taking.  That covers about three years of deficits.  Once the deed is done, and nobody can go back, the Bernack will start another round of QE, pumping the markets back up to benefit the TBTF's.  Of course, those of us with "tax-sheltered" retirement money will still be bent over with Benny's fist up inside at about the kidney level, while he soothingly tells us that a 3-percent return in perpetuity is the greatest thing since KY was invented.

See?  Everyone's problems are solved.  The bonds get a bid for a few years, the Bernack looks like a hero, and we get guaranteed returns forever.  How could this possibly end badly?  (Sarcasm off) 

Thu, 04/28/2011 - 14:35 | 1217062 RockyRacoon
RockyRacoon's picture

If a plan "suddenly" appears on this 401k business we'll know that the actual plan has been in the works for some time.   The surprise won't be that it's a surprise.   Act now!   Take your money and run.   I closed my IRA just before the tech crash, paid my penalty, and got a weird look from my accountant.   Eff him.   Never put another cent in any sanctioned retirement or investment account other than PMs in the hand.   If you get caught with your pants down on this move you have nobody to blame but that butt-head in the mirror.   Blame the gov't?  Ha.  It's the old scorpion sting fable, it's a scorpion, that's what it does.  It's a government, it takes your assets.  Period.

Thu, 04/28/2011 - 14:37 | 1217065 ivana
ivana's picture

IMHO it's realistic but confiscation is kinda plan C which may be deployed later ... game has just started

Thu, 04/28/2011 - 14:39 | 1217066 ivana
ivana's picture

IMHO it's realistic but confiscation is kinda plan C which may be deployed later ... game has just started

Fri, 04/29/2011 - 01:41 | 1219335 StychoKiller
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Then they will move to "confiscate" pensions and retirement money to buy up the bond issues from that point on, claiming that they were acting to protect the little guy from those nasty market falls that threaten pensions, 401k's and IRA's.

That's when holders of PMs get to chortle at all the PM confiscation theories!

Thu, 04/28/2011 - 13:14 | 1216711 Destinapp
Destinapp's picture

Who is going to buy these bonds when QE2 ends?

About half of today's POMO was just issued bonds.

Thu, 04/28/2011 - 13:21 | 1216730 SheepDog-One
SheepDog-One's picture

Damn, QE2 confirmed total failure....obviously the correct course of action is QE3 putting in play Keynes famous economic law Rule#1 '3rd Times The Charm' effect.

Thu, 04/28/2011 - 13:49 | 1216886 disabledvet
disabledvet's picture

"Sack" has 47% more to go!  Now "here come the barbarians from Ohio" New York.  Did someone say "Sack!"  or was it "York?"  Damn Vikings...oh, look?  Wisconsin ENERGY.

Thu, 04/28/2011 - 13:21 | 1216734 Boilermaker
Boilermaker's picture

This will be 'shrugged off'.

Thu, 04/28/2011 - 13:24 | 1216759 SheepDog-One
SheepDog-One's picture

Just like 5 Jap reactors in confirmed meltdown....Meh...shrug it off.

Thu, 04/28/2011 - 13:27 | 1216782 Drag Racer
Drag Racer's picture

5?

3 is what I read.

Thu, 04/28/2011 - 13:55 | 1216889 Biosci
Biosci's picture

See?  You've already shrugged it off.

I think he's counting Holy Grail style.

Thu, 04/28/2011 - 13:21 | 1216737 Tense INDIAN
Thu, 04/28/2011 - 13:26 | 1216770 DarkMath
DarkMath's picture

Who is going to buy?

The Fed will re-invest money from maturing bonds and probably squirrel away some money offshore to make up what the maturing cash doesn't buy.

 

 

Thu, 04/28/2011 - 13:34 | 1216821 hambone
hambone's picture

It all depends on expectations for other assets - if the stockmarket is expected to tank (in the absence of more free "money") and printing is abatted, then 3.30% yield is pretty attractive because there is suddenly a massive dearth of dollars - given the massive debt service out there, we can change back to deflation in a very short period...not politically attractive but absent QE (in all forms) we are back in deflation and soon depression (probably best medicine but America will never willingly take this prescription).

Thu, 04/28/2011 - 13:37 | 1216831 disabledvet
disabledvet's picture

realllly?

Thu, 04/28/2011 - 14:04 | 1216940 hambone
hambone's picture

Which part?  Fuck if I know but seems there's $5T ($3T rollover, $2T new) in T's annually that need to be bought?  They must be bought (PD's or Sack or somebody) or we default.  So, it's just at what interest rate.  If all else looks very fugly due to Fed stoping monetization (play along w/ me here) then there is a massive shortage of dollars to service all debt.  Money is pulled from stocks, other risk assets and put into "security" (again, play along) of T's to get any yield.

Now, will the world believe Fed won't continue to monetize...not likely because the exact point is that absent the QE, we fall into a very deep depression and must restructure all the unpayable debts but with it we run the high likelihood of hyperinflation...Fed dancing on the knife edge.

Thu, 04/28/2011 - 13:27 | 1216776 MrPike
MrPike's picture

Is there a book that explains the treasury auction process?  I get about 75% of it, but dont feel I fully grasp the significance of the numbers the way I should.

Thu, 04/28/2011 - 13:37 | 1216836 disabledvet
disabledvet's picture

"buy low sell high."  or "short high buy back low" of course.

Thu, 04/28/2011 - 13:27 | 1216796 slaughterer
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Re. Gross, there were no Krispy Kremes at this auction, Tyler.  None at all.

Thu, 04/28/2011 - 13:35 | 1216817 Paralympic Equity
Paralympic Equity's picture

It is time to show some skin (Yield), the banks are waiting around the corner with insane amounts of cash, just as the QE2 will end, the crash will come, yields will go up, banks will buy UST, and then Ben announces QE3, and they live happily ever after...

Thu, 04/28/2011 - 13:41 | 1216842 disabledvet
disabledvet's picture

"cash is for governments."  and we know what governments do with cash of course. or do we?  still waiting for a "commerical paper market" to reappear.  lalalalalalalalala.

Thu, 04/28/2011 - 13:41 | 1216848 Timmay
Timmay's picture

Or how about Corporate bonds since they are really worth "something"??

Thu, 04/28/2011 - 13:47 | 1216868 Paralympic Equity
Paralympic Equity's picture

Oh yes, at least they are backed with big piles of inventory wich will not be sold

Thu, 04/28/2011 - 13:52 | 1216893 disabledvet
disabledvet's picture

nope, nope.  Unless a "gold miner based in New Orleans."  Your collateral IS approved Mr. Barrick!

Thu, 04/28/2011 - 13:48 | 1216872 narnia
narnia's picture
in the medium term, bill gross is right.  in the long term, everyone is screwed. they will combat weakness with 7 years by lowering the maturity schedule. when inflation (unless it comes in hot- which WILL happen at some level of $ weakness) & divestment (provided it isn't a run) show up in issuances of 2 years or less, the Fed's shaping game is over.  they won't be able to stop it.  until then, they will lean on it.  if they are interested in getting through the 2012 election, they won't lean on it too heavy (provided it is still in their control), they will let it rise gradually.  eventually, the door flies open. 
Thu, 04/28/2011 - 13:54 | 1216901 disabledvet
disabledvet's picture

"101 trading" rookies.  "If the government is the market then there is no market."  Now cue to "Press Conference with Bill Gross" that "other T.S."

Thu, 04/28/2011 - 13:55 | 1216902 Racer
Racer's picture

And in the meantime, the HFTs grazing on stocks flew up briefly like pigeons feeding on corn when a breath of wind passed by to promptly continue greedily feeding after being so rudely interrupted

Thu, 04/28/2011 - 14:00 | 1216929 lolmao500
lolmao500's picture

You're sure it's not like ``pigeons feeding on PORN`` instead of corn?

 

Inflation porn that is?

Thu, 04/28/2011 - 13:59 | 1216908 wang
wang's picture

ZH just mentioned on Bloomberg TV -- Beranak now on intrade

 

earlier today on Bloomberg Pimm Fox referred to Ben as The Berank

Thu, 04/28/2011 - 13:59 | 1216923 johny2
johny2's picture

We are seeing a total fail of the long Ponzi scheme unfolding, and when even Bill Gross admits to it, you know it is pretty much game over.

Thu, 04/28/2011 - 13:59 | 1216926 wang
wang's picture

and just now on Bloomberg

the question

"Could Warren Buffett's Teflon be coming off?"

Thu, 04/28/2011 - 14:36 | 1217058 Dick Darlington
Dick Darlington's picture

OT: Ireland, zombie banks and "I owe me"-financing. It was supposed to be temporary but now it's clear it's not. When will the people of Ireland wake up and put an end to this madness...

http://www.independent.ie/business/irish/controversial-euro20bn-ownuse-b...

Thu, 04/28/2011 - 14:42 | 1217085 RockyRacoon
RockyRacoon's picture

So, with "own use" bonds I can say that I owe myself a million dollars, take that IOU (IOMe) to my bank and borrow against it at 1%, and the government guarantees the loan.  I like it!  Where do I sign up?

Thu, 04/28/2011 - 14:45 | 1217098 Dick Darlington
Dick Darlington's picture

What would You buy with all the borrowed money? I would buy all the 1 ounce silver Bernank coins i could find. ;-)

Thu, 04/28/2011 - 14:44 | 1217086 ivana
ivana's picture

Looking at 2-10y yields ... still very weak.
Move it! Move it!

Thu, 04/28/2011 - 15:12 | 1217204 jerry_theking_lawler
jerry_theking_lawler's picture

TYLER...what about the bond auctions in Greece. any news when they are going to implode. when the haircuts come, that is when the end is nigh.....

Thu, 04/28/2011 - 15:26 | 1217279 Eireann go Brach
Eireann go Brach's picture

Can someone explain why the 10 year is at 3.32% right now and dropping lower now for the past month, why are bonds not moving higher right now as Bernanke bascially telegraphed QE3 will not be coming for now?

Thu, 04/28/2011 - 15:34 | 1217316 M4570D0N
M4570D0N's picture

Are these charts right?

USDX 6hr chart, 5min interval:

http://i596.photobucket.com/albums/tt45/SH00TTH3H0STAG3/USDX-4-28-5min.png

 

ok. so far so good.

USDX 6hr chart, 1min interval

http://i596.photobucket.com/albums/tt45/SH00TTH3H0STAG3/USDX-4-28-1min.png

 

the fuck is this shit?

Thu, 04/28/2011 - 15:58 | 1217428 dark_star
dark_star's picture

Control, it's all about control.

Media conference over, control sustained, for now, this is simply the impression of control.

Chambers emtpy, bluff and hope all that's left.

Sell in May and go away, that's the tipping point right there.

 

 

Thu, 04/28/2011 - 22:28 | 1218977 XPolemic
XPolemic's picture

Can someone correct my (mis)understanding of US treasury issued notes?

Treasury Notes are zero coupon notes sold at discount, correct?

The median yield is 2.654%. Is that the term yield, or the annual yield?

If it is the term yield, shouldn't the discount be 0.9741844 not 0.99448900 (which is a yield of 0.55%).

The discount price appears to be a discount to the annual rate, rather than the term yield.

Again, if someone can clear up my confusion.

Thanks.

 

Fri, 04/29/2011 - 01:47 | 1219339 StychoKiller
StychoKiller's picture

Re:  buying US treasuries:  It's like giving a drunk a drink;  that's all ya need to know!

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