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Poor 5 Year Auction With Huge Tail Sticksaved By Primary Dealers

Tyler Durden's picture


If Yesterday's 2 Year auction was strong to quite strong, with a soaring Bid to Cover and a yield stopping through the When Issued, today's 5 Year auction of $35 billion in 5 Year paper was ugly to very ugly. With a When Issued trading at 1.578% at 1 pm, there appears to have been an air pocket at the time of pricing, which concluded at a high yield of 1.600%, a rather massive 2.2 bps tail, and a surprising outcome for auctions on this side of the belly. Additionally, this yield was just shy of the 2013 auction highs which hit 1.624% at the peak of Taper Tantrum mania in August. Furthermore, while Bids to Cover in the short end of the spectrum have been steadily rising in recent months, today's auction saw a pronounced drop in the BTC from 2.61 to 2.42, the lowest since August, and well below the TTM average of 2.67. But the real story was in the internals, where Directs took down 11.8%, just shy of the 14.6% TTM average, but it was the Plunge in Indirects from 50% to half that number, or 25.8% that was the true surprise, as it was the lowest Indirect take down since December of 2008!

This meant that the natural backstop, Primary Dealers, had no choice but to buy 62.4% of the final allocation, the highest allotment since April of 2009. In other words, while the near end of the curve is well bid, things are starting to go bump in the night at or around the belly of the curve. Look for much more pain if indeed the Fed were to announce the start of tapering today.


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Wed, 12/18/2013 - 12:54 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Hi ho, hi ho, it's off to tapering we go - NOT!........

Wed, 12/18/2013 - 13:03 | Link to Comment Headbanger
Headbanger's picture


Did somebody leak the Fed is going to announce a $20 billion taper??

Wed, 12/18/2013 - 12:54 | Link to Comment Dr. Venkman
Dr. Venkman's picture

My non-taper/un-taper bets are in. . .so the taper is a fait acommpli.

It will be interesting to see the 10 yr blow through three-point-zero.

Wed, 12/18/2013 - 12:53 | Link to Comment Tall Tom
Tall Tom's picture

I hope that they taper. Man I hope that they do. Collapse baby collapse.

Wed, 12/18/2013 - 12:56 | Link to Comment ZH Snob
ZH Snob's picture

that's so funny that buyers will trust the bonds for 2 years, but 5 years?  hell no.

Wed, 12/18/2013 - 13:07 | Link to Comment dcj98gst
dcj98gst's picture

They don't trust the bonds at any levels.  Its the greater fool with the FED being the greatest fool.  Once they realize there will never be a taper they will pile back in only until the $ drops like a rock will the game be up.

Wed, 12/18/2013 - 14:56 | Link to Comment disabledvet
disabledvet's picture

I'll say. might have to give this position one more week and convert to cash. "the lunatics are in charge of the asylum." lose control of the message, lose control of the play. being honest about a losing play doesn't change the fact that it's a loser. glad to see a budget deal. glad to see no war with Syria. Hope the fighter in Ukraine wins. Look forward to hearing Dennis Rodman's report on his trip to North Korea.

Wed, 12/18/2013 - 12:56 | Link to Comment knukles
knukles's picture

The 7 years are the bastard of the auction cycles, followed only by the 5's.
They're not always well bid for... even in the best of times.

Not saying it was a good auction...

Wed, 12/18/2013 - 12:58 | Link to Comment Conax
Conax's picture

What if they talk taper then continue or increase QE on the sly?

They could have their cake and eat it, too.  (Until the truth slips out)

Gold gets hammered, FTW.

They could buy the taper-on dip and keep the lid on the damage.

I predict taper talk.


Wed, 12/18/2013 - 13:06 | Link to Comment dcj98gst
dcj98gst's picture

They are most likely doing this already.  No FED audit means they can do what they want and hide the assets aquisistions.

Wed, 12/18/2013 - 13:26 | Link to Comment NotApplicable
NotApplicable's picture

Yep, all they're doing is to try and figure out a way to pretend to taper in a manner that doesn't spook the herd.

If tapering was ever possible, then QE would've never been needed.

Wed, 12/18/2013 - 13:05 | Link to Comment dcj98gst
dcj98gst's picture

No taper, yields back to previous "no taper" levels.  Means FED has no balls at these levels.  Therefore, no taper, just jawboning about a future taper that will never come.

Wed, 12/18/2013 - 13:05 | Link to Comment chaartist
chaartist's picture

I start to suspect tha bitcoin was created to cover BTC ratio going forward. s.

Wed, 12/18/2013 - 13:23 | Link to Comment Babaloo
Babaloo's picture

"... sticksaved by primary dealers (?)"

Uh, isn't that what they're there for?

Wed, 12/18/2013 - 14:04 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Well, we haven't seen that kind of primary dealer participation since 2008...

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