Today's 7 year auction capped a miserable week, in which the 2 and 5 Years auctioned off placed at very ugly terms, although none probably quite as ugly as today's 7 Year. The $29 billion QT0 priced at a 3 bps tail to the when issued, replicating yesterday's action, and pricing at 2.43%, the same as last month, but at a Bid To Cover of just 2.62, the lowest BTC since March 2010 when QE1 was ending and the future was unclear. And like during the past two auctions, the internals were decidedly ugly as Dealers had to take up 56.07% of the amount offered: the most since May 2009, when however the Direct bidder category was a non-factor. Indirects continued their trend of stepping away from all issuance and bought just 32.17% of the bond, the lowest since March 2009. Additionally the hit rate on the indirect bid was a whopping 86%. If anyone has figured out just how foreign banks will step in to fund US bond issuance, please let us know, because we are confused. And Dealers will not be all that excited to have to convert risk assets into paper yielding just over 2%, in the absence of the Fed's vacuum pump... Certainly not at these rates. Slowly, the realization that OT2 is not coming a week ago is starting to soak in as the Treasury complex is finally realizing that Gross was right all along. Exhibit A for the past statement: the performance of the 5 year in the past 3 days, whose 32 bps blow out is the 3rd biggest such move. Ever.
But don't take our word for it. Key excerpts from Stone McCarthy's take:
- "today's 7-year note auction was atrocious."
- "The auction stopped a full 3 basis points above the 1:00 P.M. bid side, and the 2.62 bid/cover was the smallest since March 2010."
- "It was the smallest Indirect bid since April 2009, two months prior to the change in bidder classification rules that resulted in more of the auction bids being attributed to Indirect bidders. The bid accounted for just 14.3% of the overall bid, which was a record low."
- "the 32.2% Indirect takedown today was the smallest since March 2009."
Curiously, the bond vigilantes may skip Italy altogether and focus on the biggest ponzi of it all.
7 Year historical results:
The 5 Year move in the past 3 days in context:
h/t John Lohman