No QE, No Problem: Despite Drop In Indirect Interest, $32 Billion 3 Year Prices Better Than Expected

Tyler Durden's picture

With the When Issued trading at 0.688% just before 1pm, some were expecting a relatively weak 3 Year auction to price. Instead, the Treasury managed to place the $32 billion in paper at a new 2011 low yield of 0.67%, nearly 2 bps inside the WI. The Bid To Cover was nothing to wrote home about at 3.219, the lowest since February, although certainly not a bad number. There was little else to cheer about: Dealers took down 49% of the total, with the Indirect share declining once again, from 35.6% to 34.5%. The offset was a surge in Directs bids which were responsible for 16.5% of the auction, the highest of 2011. Whether this is merely London-based Chinese proxies, or some other Vince Reinhartian contraption keeping rates low, is unknown. As a result of the auction which many were quite nervous about, the Green eurodollar pack was down 1.75 bps as was the Red (down 1.75 bps) and White (1 bp) after the auction after being down 3.5, 3 and 1.25 bps before the auction. Bottom line: good appearance by the Dealers in the post QE2 era. The question now is who do they offload to.

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Cognitive Dissonance's picture

Looks like the Wizards of Oz aren't taking a vacation after all.

Who would have thunk?

Mr Lennon Hendrix's picture

Oz cut the rope from his Green Chute years ago, Dorothy.

Problem Is's picture

Wait... Are you saying CD is really "Cognitive Dorothy"???

kito's picture

why is that hard to understand that our treasuries will be in demand for its relative safety, for the time being. there are no greener pastures for the herd to graze on at the moment. stocks will soar as soon as debt ceiling compromise is reached and bond sales will be healthy. no qe for this year.

slaughterer's picture

No need to crash equities to get money to flow to bonds.  Risk on again. 

Quintus's picture

Excellent result.  A whole $32 billion.  Now, only another $2 trillion to get sold by this time next year.  Shouldn't be a problem - it's just a few more zeros, right?

redarrow's picture

Look at this, and people blamed Meridith Withney for talking about it.

what bothers me is that how do these people on pension get to retire at 51, get 80% of their highest salary, free health care and other benefits for life? Who came up with these crazy benefits?

Mr Lennon Hendrix's picture

The Directs printing money issued against public pensions, then turning around and buying Treasuries.  Baha!

GeneMarchbanks's picture

I have to say I'm a little disappointed in the 'success'.

ES ramp...check, 3 year auction...check just goes to show how powerful that Kool-Aid delirium is... ahhh... there's always tomorrow.

vote_libertarian_party's picture

The auctions won't fail.  They are high profile events.


The prices will go down during the distributions.  Unless the PD already were told QE3 will arrive shortly.

ebworthen's picture


There is, no doubt, an already whispered flip-back option, "Just buy" said the Treasury.  Maybe they'll dip into the U.S. government worker pension funds a little more and leave a promissory note.

The panic in Europe may have chased some buyers to the U.S. bonds as well; best henhouse on the block despite the community farms being overunn by foxes and sleeping dogs.


slaughterer's picture

China cannot buy Ts--it is too busy bidding the Eurozone junk.  What country is making the flight to "quality"?

spartan117's picture

No QE?  So why is gold surging?

Mr Lennon Hendrix's picture

Because public pensions are not paid in gold.

baby_BLYTHE's picture

it is surging because Ron Paul is not seeking re-election, so now Bernanke has no opposition to keep his foot on the gas peddle.

The new future chairman of the monetary policy committee will bow to his new master and kiss his ring

Mr Lennon Hendrix's picture

Yet if gold goes higher Paul could be President.

sabra1's picture

“I have decided not to seek re-election for my House seat in 2012 and will focus all of my energy winning the Presidency,” he wrote this morning.

TooBearish's picture

Some peeps talkin Ben announcing QE3 tom


treemagnet's picture

Theres more to this story.  Can't wait to see "the flip" results.  I smell stink.

monopoly's picture

And Houston, we have lift off. We are good to go. :))))

monopoly's picture

This is nuts. Was Tyler on CNBC> lol

LawsofPhysics's picture

As many on this and other blogs have already pointed out.  The infinite QE machine has been well primed and is working just fine.  Gold should explode north shortly.

steve from virginia's picture

People don't understand government borrowing/lending when a country does so in its own currency.

As long as the Treasury continues to borrow there will be bids, as the borrowing process creates bidders. The problem starts when the Treasury ceases borrowing or slows down. Fewer bidders created.

So simple 'the mind recoils' sez J. K. Galbraith, but he was an economist so what would he know ...

JeffB's picture

I'm not sure I quite follow what you are saying here.

Are you saying that "the borrowing process" is the Fed having a deal with the dealers such that the dealers buy the bonds, and the Fed prints the money to buy them back for a small(?) profit for the dealers?

Or are you saying that just by the very fact that they are issuing more bonds they are creating bidders?

If you are saying the former, I would say that makes sense, at least in a governmentally twisted sort of way. But if the latter, I can't really see the sense in that, particularly if you are implying, as it seems to me you are, that there will be no problem as long as we just continue to borrow ever more ad infinitum.

Would you mind expanding upon your thesis for me a bit?


ivana's picture

Green and blue bars will get longer. Red shorter. Yields up as soon as EU bond crisis(episode 1) calms down.

US bonds yield rise will always lag EU. Before general Treasury cash flow dries up, yield caps and some form of QE3 will start


Edit: I'm watching USD next few months. Some USDCHF trendlines may be breached. In general monetary ice age coming. Cash available only to those whic obey and give up their freedom

inkarri9's picture

I guess we now know who they will potentially unload to....QE here we come...

swissinv's picture

the auction went well due to demand of primary dealers and they will eventually offload to the FED

alexanderstollznow's picture

yep, bring on all your excuses as to why the first auction after the end of QE2, isnt a huge flop.  so much for PDs only buying because they know they can flip it all to the Fed the next day!