Weak 5 Year Auction Prices At 1.41% High Yield, Lowest Bid To Cover In 6 Months As Foreign Investors Flee
With today's $35 billion 5 year auction pricing at 1.41%, we continue to see confirmation that the recent strength in the belly of the curve is quickly turning into pronounced weakness. The Bid To Cover was 2.65, the lowest since June or 2.58, but most notably those mysterious Directs came and took down a record 15.6% of the auction: the largest in history. Offsetting this was the complete collapse in Indirect interest, as foreign institutions took only 31.5% of the auction, the lowest Indirect take down since April 2009. The result was that Primary Dealers got stuck with saving the auction as usual, taking down more than half, or 52.9% to be precise, the highest since June. That foreign interest in the bond was so low is not surprising to us: as we highlighted yesterday, the Fed is now the largest holder of US Treasury debt. At this point the divergence will accelerate, as PDs and the Fed end up owning ever more of each and every auction (and subsequent monetization), while China et al is increasingly relegated to stand by status.