Latest Four Week Auction Indirect Hit Ratio Is Back To Record Highs, Comes At 99.1%

Two weeks after the indirect hit ratio in the 4 week auction came at a record 100%, today it was once again at almost at the all time possible high, with Indirect Bids of just $6.744 billion taking down $6.683 billion, resulting in a 99.1% hit ratio. The chart of the recent Indirect hit ratio in recent 4 week bill auctions is attached.

Here is the actual auction result:

• 4 week prices at 0.11% (nearly double the 0.056% from two weeks ago)
• 75.56% allotted at high; Median rate of 0.1%, low of 0.05%;
• Bid to Cover 3.90, compared to 4.34 last week
• Indirects take down $6.68 billion of competitives, or 21.8%;
• Indirect hit rate comes in at 99.1%

We provided the following explanation two weeks ago as to why this will likely be an ongoing theme, especially when coupled with aggressive roll offs of Bills by key investors such as China:

The implications from this result: the Indirect bidders put the
greatest amount of 0.000% or as close to preliminary bids as possible
(remember, this means bidding at the highest actual bond price),
followed by directs and primary dealers as we approached the 0.055%
stop out to fill the $31 billion reverse dutch auction. Yet the hit
ratio has never been 100% before (or at least not according to our
data). This means that indirects are not price fishing, trying to
jigger the auction with low ball bids: they are simply reducing their
absolute nominal exposure to the Bill space, further confirming the TIC
data which showed China is now happy to let its Bills expire without
rolling . We expect an increasing amount of 100% hit ratio Indirect
bids in Bill auctions in the future, as the full amount of Bills
tendered progressively declines, forcing Primary dealers to take down
80% or more of all future Bill auctions.

And in other news, now
that we can stop all pretense about fiscal responsibility courtesy of
the just increased debt ceiling, the Treasury just announced that it is
increasing the balance of its Supplmentary Financial Program to $200
billion, which will be promptly filled by 8 sales of $25 billion 56-day
Bills over the next 8 weeks. The SFP program, which was previously
unwound to a mere $5 billion, will now be used to raise an incremental
$195 billion in debt to fund the burgeoning deficit. A Treasury
official was quoted as saying: "We're committed to working with the Federal Reserve to ensure they have the flexibility to manage their balance sheet."
Since the Fed has the printer, we are committed to believing that
whatever the Fed does will be in the dollar's best interest. The
beatings to increase morale, as well as the 8 SFP sales, will commence
promptly tomorrow and continue until mid-April.

This SFP news
is relevant because today's Indirect Hit Ratio demonstrates that the
"sales" of $195 billion in new SFP bills will merely go to Primary
Dealers and whoever the increasingly less mysterious Direct Bidder is,
as Indirects phase out all Bill interest altogether.

The $26 billion 52-week auction also closed today, with a 4.00 BTC, compared to 3.65 previously.

Comments

[Anonymous]

The Fed is buying over the Cayman Islands.

Simple as that.

Topic closed.

[Anonymous]

We dont want your stinking paper dollars anymore.

We want GOLD.

Thats what we learned.
Thats what has changed.

[Cognitive Dissonance]

Hey, it's not crazy unless we all (or at least the vast majority) agree it's crazy. ZH readers and commenters don't count since we're off the radar and have no power. While I know that statement might hurt our egos, neither Tyler nor Marla run the printing press.....yet!

[Bear]

They should print the new currency: The Zero

[faustian bargain]

or maybe the 1/∞

[tenaciousj]

This is a good thing, right?

[Mr Lennon Hendrix]

Predictions proving accurate for TD!  Hit, hit, hit!  I think that they are using monkeys to bid, and are supplying bananas for hitting the bid first.

[Anonymous]

Up up up the market goes, not caring about any of this negativity - real or not.

Buy and make money.

[Anonymous]

Could someone explain to this dumb housewife in Oregon who the direct & indirect bidders are? Big Zero Hedge fan...educating myself on the absolutely stunning ponzi scheme our brilliant leaders have concocted.

[faustian bargain]

I'm not an expert, but here's a data analysis by the NY Fed. Granted, this was done on data from ~15 years ago, so I'm sure there's much more relevant analysis out there somewhere:

http://www.newyorkfed.org/research/current_issues/ci13-1/table5.html

http://www.newyorkfed.org/research/current_issues/ci13-1/Images/flemcht3...

The article is here:

http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html

And there's a good summary here:

How Well Does the Indirect Bid Explain the Foreign and International Allotment?

Another way to analyze the data is to explore the extent to which differences in bidder category purchases across auctions can explain differences in investor class allotments. Such an approach would seem to offer a means of testing the common view that purchases by indirect bidders are good proxies for purchases by foreign central banks. However, the data do not allow a test of this particular relationship, because information is lacking on foreign central bank purchases of Treasury securities at auction (aside from the noncompetitive purchases made through the Fed). Nevertheless, the data do allow a test of how well indirect bids explain purchases by foreign and international investors as a whole.

While all investor classes bid indirectly to a certain extent, the earlier results can be used to show that foreign and international investors account for the largest share of purchases by indirect bidders (averaging 46 percent), followed by investment funds (32 percent), dealers and brokers other than primary dealers (18 percent), and remaining investor classes combined (4 percent).16 Average allocations vary substantially across issues, however, so that foreign and international investors account for only about 2 percent of cash management bills purchased indirectly, but 74 percent of twenty-six-week bills purchased indirectly (Chart 3).

Regressions of foreign and international allotment shares on indirect bidder purchase shares show that the indirect bid does indeed proxy for foreign and international purchases and in the expected way (Table 6). For the two-year note, for example, the average share allotted to foreign and international investors is estimated as 8 percent of the issue plus 50 percent of the indirect bid. The R2—a measure of the variance explained by the statistical analysis—suggests that for the two-year note, 48 percent of the variation in foreign and international purchases is explained by variation in the indirect bid.

The regressions also reveal significant differences across issues in the extent to which indirect bidder purchases can explain foreign and international allotments. In particular, the R2 measures are much higher for notes than for bills. Variation in the indirect bid across auctions thus explains 75 percent of the variation in ten-year-note purchases, but only 16 percent of the variation in thirteen-week-bill purchases.

The low R2s for the thirteen- and twenty-six-week bills in particular are somewhat surprising as foreign and international purchases of these securities are quite large. Nonetheless, while the average level of foreign and international purchases of these bills is high, the variation in such purchases is low when compared with investment funds' purchases (the funds also buy nearly all of their securities indirectly).17 As a result, variation in the indirect bid for bills is determined to a greater extent by investment fund purchases. Put another way, the indirect bid for bills is a better proxy for investment fund purchases than it is for purchases by foreign and international investors.

[Anonymous]

It's time for a bond auction to fail to educate the politicians that spending has got to slow NOW!

[Anonymous]

I buy gold bullion every month because Obama lost me completely. Its all a fake.

Do what you want.

[Anonymous]

+some really big number, levered to the hilt.

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[John123456]

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