Today's 30 Year auction of $13 billion was a carbon copy of the previous 3 Year and 10 Years both pricing in the last two days. What was so carbony about them? Well, all three came inside the When Issued, with the 30 Year $13 billion reopening pricing at 4.198% 2 bps inside the 4.22% WI, and all three have seen a surge in Direct Bidding take down. Is the Direct Bidder, a category that was redefined back in June 2009 for reasons not exactly known, the "buying force" that is supposed to take over for dropping Indirect Interest? And yes, for a strong auction the 30 Year today saw a decline in foreign bidder participation to just 37.8%, better only than May's 33%, and the second worst in all of 2011. But yes, thanks to the "Directs" coming out of left field and bidding up a whopping 21.9%, compared to 9.3% in the June auction, the Bid To Cover surged to 2.80 from 2.63. One look at the chart below shows that there is a very distinct correlation between the take down of Direct Bidders and QE: between February and August, or the period between QE1 and QE2, the average Direct Bid was 22.3%, while during QE periods this number gets cut in half. We doubt Directs are merely indirect proxies for China, but like everything else having to do with the riskless basis of Treasury auctions, the actual source remains shrouded in secrecy, and only after the collapse of the Treserve ponzi do we hope to discover just who and how makes up this category. One thing is certain: we are 100% confident Direct Bidders will make up a major portion of all auction across the curve until the onset of QE3.
Is there a pattern here?