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Ugly, Tailing 7 Year Auction Concludes Weekly Issuance Of Treasurys

Tyler Durden's picture


If yesterday's large tailing 5 Year paper sale exhibited some curious ESP ahead of the FOMC's tapering announcement, with a very ugly tail and atrocious internals, then today's 7 Year was quite aware of what was coming. Which is why it was not surprising that the just concluded sale of $29 billion in belly-buster bonds, once again came with a flopping 2 bps tail, pricing at 2.385% or 2 bps wider of the 2.365% when issued, indicating the hiccups in the auction process continue.

Also of note: the 2.385% closing yield was the highest since June 2011, while the Bid to Cover, despite posting a modest bounce from last month's 2.36 to 2.45, has continued the downward trend confirming a notable split in demand for auctions: everything to the left of 5/7 Year is being bid up without failure (due to its assumed "money-good" nature and promises of ZIRP into 2016 and further), while the 7 Year and onward are increasingly starting to spook investors. Finally, the internals showed that while Directs took down less than the TTM average of 19.5% at 17.1%, this was offset modestly by a pick up in Indirect bidders who took down 41.74% of the auction, leaving 41.2% to dealers.

Bottom line: if indeed the Fed continues to taper at $10 billion/meeting (it won't), expect to see the high yield to keep rising every higher in order to find the required buyers now that the Fed - at least superficially - is stepping away.


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Thu, 12/19/2013 - 14:20 | Link to Comment Leonardo Fibonacci2
Leonardo Fibonacci2's picture

This dance the FED is doing will go on for years before it all comes crashing down.  Sad but this is the situation.  The gap between rich and poor will widen and the middle class will be no more.

Thu, 12/19/2013 - 14:24 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Correct, and while they never ring a bell at the top, TPTB have been known to drop a bomb or two at the bottom.

Thu, 12/19/2013 - 14:46 | Link to Comment Ham-bone
Ham-bone's picture

The Fed cannot taper (even @ present $480 B) and keep rates below 3%...unless the stock market dives some to drive money back to Treasury's.

New issuance from the Treasury, intra-gov sales due to SS deficits plus rollover cannot be covered w/ $480 B...only way is if the Fed is somehow funnelling dollars to "foreigners" to maintain their holdings and increasing their $5 T existing holdings.

Thu, 12/19/2013 - 15:11 | Link to Comment CounterPartyVice
CounterPartyVice's picture

"unaudited" ...

Thu, 12/19/2013 - 15:24 | Link to Comment Ham-bone
Ham-bone's picture

Yup - by hook or by crook seems rates will stay down...I'm only pointing out that by the laws of math the Fed would be in trouble...lucky for the Fed, no laws apply to them

Thu, 12/19/2013 - 16:11 | Link to Comment USA USA
USA USA's picture

The FED will continue to buy, we just won't know it!

Thu, 12/19/2013 - 16:15 | Link to Comment dcj98gst
dcj98gst's picture

Don't get too arragant about "it will take a long time to unravel."  All it would take is one black swan event and the house of cards could fall hard.

Thu, 12/19/2013 - 14:21 | Link to Comment derek_vineyard
derek_vineyard's picture

short AU long SPX short TSY

Thu, 12/19/2013 - 14:21 | Link to Comment 666
666's picture

Soon the entire USSA GDP will be used to pay interest only on the damn bonds.

Thu, 12/19/2013 - 14:33 | Link to Comment agent default
agent default's picture

Interest rate swaps will have blown up long before then.

Thu, 12/19/2013 - 14:31 | Link to Comment HFBondsTrader
HFBondsTrader's picture

An auction tail isn't really indicative of anything except for dealers' mis-pricing of supply event. Don't read too much into it.

Thu, 12/19/2013 - 16:12 | Link to Comment dcj98gst
dcj98gst's picture

There is a lot of mispricing in the bond market.  And it is significant.  Expect the yields to keep rising when price discovery is unveiled.  Either slowly or violently.

Thu, 12/19/2013 - 14:39 | Link to Comment Yen Cross
Yen Cross's picture

    I'm still trying to get my head around why the equity markets are up today. Not one U.S. macro data point was positive, bonds are getting ugly and the usd is bid.

   Maybe the banksters are hoping for more bad news so Bernmeister can do an untaper presser next week. I guess it could be that better than expected 'Mexican Retail Sales #'.  /sarc

Thu, 12/19/2013 - 15:04 | Link to Comment Spungo
Spungo's picture

Taper does not mean tightening. They're still pumping 75 billion into the markets. It will keep inflating until 1) the fed completely stops printing money, 2) interest rates rise and marginal buyers start selling

Thu, 12/19/2013 - 16:06 | Link to Comment ChaosEquilibrium
ChaosEquilibrium's picture

Reducing FLOW is 'tightening'.......Markets SHOULD be discounting the implied rates.. they have...and "THEY" WILL...door is not large enought to safely exit the burning Treasury "they" Primary Dealers, Sovereigns, Pension, Hedgies!!

Thu, 12/19/2013 - 15:56 | Link to Comment Tyler Durden
Tyler Durden's picture

From yesterday:

We learned that good news will continue to be bad news, and vice versa, as the faster the economy relapses into a sub-2% growth rate (and Obamacare will promptly help out in that department in the new year), the faster the Fed will take a long, hard look at returning to its baseline $85 billion (or more) per month liquidity injection. Because “data dependent” means that the stronger the data, the faster the Fed’s crutches go away: crutches that have been responsible for 100% of the market upside since March 2009. Or maybe this time the Fed has actually timed the economic recovery flawlessly and indeed a virtuous cycle is emerging. Maybe, maybe not: ask Jean-Claude Trichet who hiked rates at the ECB a few months before the sharpest European crisis flare up forced Bernanke to once again bail out the Old World.

Thu, 12/19/2013 - 16:35 | Link to Comment Ham-bone
Ham-bone's picture

To incite a QE turnaround (reacharound?) and stop the taper process and re-ignite the full(er?) $85 B...there really must be some sort of "market" based tantrum...Treasury's and/or equities.  Then upon this downturn the Fed can "save the day" with first Hilsenrathian late day "breaking" news from the Janets lips (don't get any ideas) to John's ear and then subsequent real increases...and all can BTFD until they are BTFATH again.

Otherwise if based on a tapering (full or partial) over 2014 and equities rise while Treasuries maintain sub 3%...would really point to some dark agent (ESF or the like) in the shadows making a full mockery of our present mockery.

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