The last time we saw a 10 Year auction with comparable confusing internals, it was in July, when in a bond issue that smashed virtually all record, the sold 10 year paper in what we then dubbed a "WTF auction." Today's 10 Year $21 billion reopening, while maybe not quite as stunning in all categories, and coming at a yield of only the third highest in history or 1.65%, certainly had enough drama in the internals to qualify for the designation of WTF 2.0. It wasn't the Bid to Cover either that made it remarkable, which at 2.95 was higher than November, but well below the TTM. What truly set aside this reopening was that the Directs, continuing on yesterday's surge, took down a massive 42.7% of the auction: only the second highest since the July 45.4%. The flipside of course is that Indirects were left holding 24.2%, or the lowest Indirect take down since April 2009. Why did this dramatic inversion happen? Why the collapse in Indirect bidder interest (only $6.6 billion in bids tendered for an allocation of $5.1 billion)? It is unclear, for now.
The scramble to Uncle Sam's paper of last resort continues, when in the aftermath of yesterday's Triple Double (second Highest Bid To Cover and Indirect take down, and second lowest Yield ever), we saw a Bid To Cover of 3.04 for today's 29 Year 11 month reopening, which was the highest since 2000, and a record low yield of 2.925%, 3 bps inside of the When Issued. The only rain in this parade was the Indirect Bidder take down which was a modest 32.5%, compared to an LTM average of 36%, while Dealers took down 46.3% and the remainder, or a sizable 21.2% going to Directs. Considering the pervasive sell off in risk and all liquid assets, it is not surprising that cash had to parked somewhere, and today it was in the place where the monetization circuitry still works. When Europe finally tumbles and the bond vigilantes have no other targets left, we may have to revisit, but today the world's cash strapped investors have just one place to park their cash equivalents: congressional pork, because naturally the auction result gives Congress a green light to do lots of future fiscal stupidity.
The "benefit" of Operation Twist for the long end shone through today as the Treasury priced $13 billion in a 30 Year reopening, which came at a record low yield of 3.12%: this was 4 basis points inside the When Issued of 3.16% so at first sight the auction was a stunning success, confirmed by the second highest Bid To Cover in the auction history of 2.94. Perhaps... The only problem is when one looks at the internals, where just like yesterday, the most prominent observation was the total collapse in the Indirect Bid, which accounted for just $3.7 billion of the take down or 28.7% of the total, less than the Direct portion which despite having plunged in all other recent bond auctions soared to a virtual record 29.5% of the total auction (less than just the 29.6% from March 2010). And now the question again arises: are the Directs merely London-based offshore entities doing China's bidding away from the Indirect bidder spotlight, or, is this some other operation that kicks in every time when a plunge in Indirects is expected, such as over the past two days with China seemingly doing all it can do show it is telegraphing a plunge in interest for US paper. We will know more today when at 4:30 pm the Fed discloses its most recent custodial Treasury holdings for the past week. In the meantime, the Primary Dealers and the Directs have the long-end firmly under control.
Today's $13 billion in 30 Year bonds (Cusip QQ4) priced at a disappointing 4.238%, with a nearly 4 basis point tail to the when issued which was trading at 4.19%, which resulted in spooking the bond market briefly and causing some LT curve jitters. The Bid To Cover was 2.63, a bounce from the May 2.43, though below the LTM average of 2.68. The internals were relatively normal: Indirects taking down a below average 38.4%, Directs purchasing 9.3% of the auction, and Dealers left holding the bag, even if only for 2 weeks, with 52.3% of the auction. The Indirect bidder hit rate raised a few red flags coming in at a rather high 77.3%, although besides the surprisingly big tail, the auction once again came in as expected, which is to be expected: after all dealers will flip the bulk of it back to the Fed at the next two 17-30 year POMO.
The Treasury just sold $21 billion in a 10 Year reopening (9 year 10 months), at a high yield of 3.494%, just below last month's 3.499%. Overall the auction turned out weak pricing outside of the when issued, confirming that the butterfly-ES correlation (which is primarily driven by the 10 Year) is working. And just as the market dipped into the auction the natural response would be a pick up following the placement. The internals were weak: Primary Dealers were forced to take down more than half (51.7%) of the auction (with every intention to flip to the Fed in a week or so), the highest Primary Dealer takedown since February 2010. In return, Indirect Bidder interest slumped to 42.4%, the weakest showing since October of last year, and the balance, or 5.9% was filled by Directs. The low Bid To Cover completed the weak picture, coming at 3.13, the lowest since December, but in line with a one year average. More importantly, with this $21 billion and yesterday's $32 billion, US debt is now $53 billion higher than the unsettled total disclosed yesterday of $14.268, or $14.321. This is far above the debt limit. It also means that the debt actually subject to the limit is now $14.269 billion, or $25 billion below the ceiling.
And keep in mind there is another $13 billion in 30 Years to be
auctioned off tomorrow (granted offset by $19.2) billion in maturities.
Will the Treasury last through July without a debt ceiling increase at a
rate of issuing $125 billion in net debt per month? Not a chance in
Today's 10 year $21 billion auction closed at 3.388%, an increase from last month's 3.34% and the highest since May 2010. The Bid To Cover came at a strong 3.30 compared to the one year average 3.12, and much better compared to last month's 2.92. The reason for the strong auction, which has caused 10 Years to pare their losses on the day is that indirect bidding jumped, and took down a whopping 53.6%. Just as importantly is that Primary Dealers, read the Fed's shell intermediaries, bought just 31.6% of the auction (with 14.9% going to Directs): this is the lowest primary dealer take down ever (at least according to our database)! This is very surprising as the Fed continues to have to monetize every single auction eventually, which means that China et al, who make up the indirect bidder roster, will have to flip their bonds to the Fed sooner or later, presumably at a profit. This also confirms our observations that PDs have become allergic to US paper in recent week, with PD UST holdings plunging by a stunning $70+ billion since late November. This trend appears to not be reversing for now.
Weak 3 Year Auction Closes At Lowest Bid To Cover Since February, Highest Primary Dealer Participation Since February 2009Submitted by Tyler Durden on 10/12/2010 12:14 -0500
A very odd $32 billion 3 year auction has priced at a record low yield of 0.569%. The yield was no surprise, however the Bid To Cover, at 2.946, was the first sub 3 BTC since February 2010. And the most disconcerting aspect, is that the Indirect Bidder participation was a mere 29% - the lowest since January 2009. Which meant that, as can be seen on the chart below, Primary Dealers had to step in and buy nearly two thirds of the auction, or 59.1% to be specific. Less surprisingly, the still mystical direct bidders took down 12%, an increase from last month's 11.7%. In other words, clean demand for the auction was just over $9 billion, with the balance assumed by the Dealer-Direct HoldCo-OpCo labyrinth. While the migration to the right side of the curve by the Indirects was long anticipated and confirmed by Zero Hedge, today's results may require an extra close scrutiny of tomorrow's 10 Year and Thursday's 30 Year.
In a statement posted on the PBOC's website late last night, the Chinese central bank has announced it will seek a flexible yuan, ending a two-year peg to the dollar. The news comes a week before the G-20 meeting at which the CNY exchange rate was set to be a key issue of debate. On the other hand, as the PBoC noted, With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist." As such, a large initial move is unlikely to occur, and the bulk of the volatility will likely strike at traded CNY forwards. Either way, this is sure to play major havoc with already extremely volatile EUR, CHF, GBP and JPY pairs.
Evidence seems to be mounting that we are headed towards some sort of implosion in the paper Gold market, and perhaps the currency/bond markets in general. Got physical Gold?
Horrible 30 year bond auction in which not only did the bid to cover plunge from prior auctions, not only was the tail very big, but the Direct take down (24%) was almost as high as the Indirect (28.5%). Something is very wrong with the demand dynamics of the long-end, as we have long speculated.
- Yields 4.720% vs. Exp. 4.687%
- Bid To Cover 2.36 vs. Avg. 2.54 (Prev. 2.68)
- Indirects 28.5% vs. Avg. 41.07% (Prev. 40.77%)
- Indirect Bid To Cover: 1.44
- Allotted at high 61.57%
- Direct Bidder Take Down: 24.07%
- Indirect Bidder Take Down: 28.53% - foreign buyers are fleeing, with the average of the last four auctions coming at 39.9%.
Algos care not that we just had as close to a failed auction as possible.
An extended analysis of TIC, FMS, DTS and TreasuryDirect data confirms that while Indirect bidders (aka Foreign Investors) continue to bid up US Government securities, their interest in the short end of the curve has not only declined, but accelerated redemptions have left Indirects with a heavily weighted long bond exposure. This raises the following questions: are inflation expectations once again vastly premature, who keeps buying the short-end at record low yields, and what kind of event will be responsible for the unwind of the groupthink idea of the day: the curve steepener?
$21 Billion 10 Year Reopening Closes At 3.754%, Indirect Bidder Take Down Scarce At 29%, Vs 43% For Last Eight AuctionsSubmitted by Tyler Durden on 01/13/2010 13:18 -0500
Yields 3.754% vs. Exp. 3.763%
Bid To Cover 3.00 vs. Avg. 2.86 (Prev. 2.62)
Indirects take down 29.0% vs. Avg. 43.05% (Prev. 34.76%)
Indirect Bid To Cover 1.89
Alloted at high 49.95%
Direct bid take down surges again to 17%from 8.9%
- Yields 3.510% vs. Exp. 3.350%- Update: It appears the fine folks at Ran Squawk, where we sourced this data, had a typo (http://www.zerohedge.com/news). It would appear they had a fat finger moment and the actual number was 3.53% Exp. This is, of course, in line with the auction outcome.
- Bid-To-Cover 2.77 vs. Avg. 2.62 (Prev. 3.28)
- Indirects 55.3% vs. Avg. 28.5% (Prev. 43.9%)
- Allotted at high 78.40% (BBG)
- Indirect bidder Bid-To-Cover at 1.4x
From GX Clarke
What exactly is an indirect bidder?
This question used to be fairly easy to answer. An indirect bidder was one that did not trade with Primary dealers and dealt directly with the Fed at auctions. That's the kind of quirky funny twist on language that would draw the ire of a George Carlin, "So an IN-direct bidder Bids