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.