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Heavy Short Overhang Results In Solid 3 Year Auction Despite Broad Treasury Weakness
After today's latest selloff in the Treasury complex which has again sent yields to the widest levels since October, many were watching today's first of the week bond auction with trepidation to see if the rout in the secondary market would spill over into the primary. It did not. In fact, pricing at 1.125%, this was precisely on the screws of the When Issued at 1pm, suggesting there was no notable weakness in demand for today's $24 billion in 3 Year paper.
The breakdown: the bid to cover was 3.33, flat with last month's 3.34 and above the LTM average of 3.29. The internals were hardly spectacular either with Indirects (aka central banks) taking down 50.7% of the auction, a fraction weaker than May's 52.7% but far stronger than the LTM average of 41.5%, leaving 9.7% to directs, also a slight drop from the prior month, and 39.6% to Dealers.
In conclusion, it is likely the auction would have been well weaker had it not been for the substantial short into the auction. As the following chart shows, the amount of shorting of the underlying was so heave that 3Y paper has been consistently negative in repo for the past week. In fact, contrary to spin, there is a material shortage of paper along the entire curve right of the 3 Year, as everything is now special...
... but nothing more so than On the Run 10 Years which once again are the most shorted securities, a fact which will likely make tomorrow's 10Y auction far better than what most expected.
Repo data courtesy of SMRA
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The next 10 year will be interesting, depending on the number of optimists.....
Cash,... Bonds,... Gold...
Depending on the scope of your military hardware Co. investments.
the hyperinflationists really are pulling out all the stops as violence worldwide spirals put of control.
I'd like believe that the Fed is not merely a disinterested observer but so far they're content to watch the whole world go up in flames "in the name of Judea."
The FED relies on and believes in their models and when the real world doesn't play along they do their best to make reality fit their models.....
If there is such a huge short position in US bonds, yet current yields are still very low, why are so many claiming that it's hard for the Fed to exit it's own supply of T-bills?
The reality, imo, seems to be that the shorting is necessary in order to keep yields from falling even lower, or even going NIRP.. That's providing extra supply to a market that is obviously still reflects high demand.
So is the Fed's "exit" really the problem? Strikes me that were they to initiate a short squeeze in the bond market, they could sell into it as the shorts strive to cover.
Scrutinizer
Indeed.
I believe we haven't yet seen the lows in yields...
I'm sure a massive PM dump will preceed SHTF.
Don't wait until September.
Contrary to almost every analysts opinion these days, treasury yields are going to soar. That will be problematic for many indistries but real estate in particular. Many mortage banks use the 10 YR to hedge their riskier n.. which is almost all of them. When yields rise above 4%, which they soon will, the hedge effect no longer works and the companies will have to sell their bonds in bulk.
http://www.globaldeflationnews.com/10-year-u-s-treasury-index-yieldellio...
All sounds like gobbledegook to me.