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Solid Demand For $30 Billion In 3 Year Paper But Anxiety Beneath The Surface

Tyler Durden's picture


Tapering may not be tightening, as the Fed will keep repeating until someone actually believes it (the Fed may be right, however it's not what the Fed thinks or does, but the next most levered counterparty who is the risk factor, and whose potential selling is what is keeping everyone on their toes), but the just completed 3 Year auction just priced at a yield of 0.631%, precisely where it priced in August, the month before the last "consensus" taper announcement at the September FOMC, and above the 0.581% where the 3 Year was in June when the Taper Tantrum peaked. The short-end may not be panicking yet, but the enthusiasm for bonds is certainly not where it used to be, especially when one considers 3 Years priced in the mid-0.3% range from September 2011 until May 2013.

That said, the auction showed stable demand, with the High Yield pricing through the 0.637% When Issued. Demands was even stabler when one looks at the Bid to Cover, which at 3.553 was the highest since the 3.587% in February, and continues to break the trend of declining BTCs seen over the past year, until the sharp jump in November.

Finally, the allocation was as follows: Primary Dealers: 49.6%, promptly to be flipped to the Fed, Indirects 38.4%, well above the 29.1% TTM average, and Directs taking down just 12.0%, the lowest since June, and far below the 18.9% average.

While overall the auction priced without any glitches or complications, should the Fed indeed proceed to Taper, the January 3 Year will hardly be a cool, calm and collected.


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Tue, 12/10/2013 - 14:21 | 4233114 nope-1004
nope-1004's picture

The new sucks donkey balls.  Looks like one big billboard, when I drive by at 50.  Nauseating and I can't find anything.


Tue, 12/10/2013 - 14:23 | 4233117 dcj98gst
dcj98gst's picture

10 year tomorrow and 30 year on Thursday.  I am betting that these will not turn out as nicey nice.

Tue, 12/10/2013 - 14:31 | 4233138 LawsofPhysics
LawsofPhysics's picture

Optimist.  Actually, I take that back, there is no longer a "market" for sovereign debt.

Tue, 12/10/2013 - 14:33 | 4233149 dcj98gst
dcj98gst's picture

True price discovery (market) is always just a black swan event away.   ho hum someday.

Tue, 12/10/2013 - 14:55 | 4233211 TrustWho
TrustWho's picture

the break will take place in souhern europe, will wipe out southern europe's central banks and eventually Draghi. I just hope this happens when Draghi is sitting in the chair.

Tue, 12/10/2013 - 17:59 | 4233917 Four chan
Four chan's picture

solid demand...from the fed?

Tue, 12/10/2013 - 14:30 | 4233136 ZH Snob
ZH Snob's picture

who would take that extreme risk at this point for a lousy .631%?  I must be out of the loop.

Tue, 12/10/2013 - 14:32 | 4233144 dcj98gst
dcj98gst's picture

zero risk when you can turn it around and sell it to the fed.  Leverage that baby 20 times and you are talking real money at no risk.  Its good to be a banker in the "system"

Tue, 12/10/2013 - 14:33 | 4233143 CounterPartyVice
CounterPartyVice's picture

Counterparty risk you say? It died with these letters ... TBTF. Now increase leverage as much as you want, we'll give you the regulatory smokescreen that goes with it.

Tue, 12/10/2013 - 14:36 | 4233155 dcj98gst
dcj98gst's picture

It did not die.  It just only points in one direction towards the taxpayer.

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