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Weak 7 Year Auction Tails 0.8 bps After Foreign Central Bank Buyers Balk
If this week's earlier 2 Year and 5 Year auctions were impressive, with either record, or near record, Indirect - aka foreign central bank - take downs leading to blistering bid-side demand and yields pricing comfortably through the When Issued, then something clearly changed in the past 24 hours, because the just concluded 7 Year auction was a mirror image of yesterday's whopping 5 Year.
With a When Issued trading at 2.013%, traders were looking for a high yield to print well inside of that. Instead they got a nearly 1 basis point, or 0.8 bps to be price tail, to 2.021%, even though the Bid to Cover was nominally above last month's 2.384, printing at 2.468. The reason for this almost certainly was the steep drop in the Indirect take down, which dipped from 56.64% in June to just 49.15%, which was the lowest foreign central bank demand since October. And with Directs relatively unchanged, at 12.01%, it mean that Dealers had to step up and take 38.8% of the issue, the most since September of 2014.
And now the question: why the ravenous central bank demand for 2 and 5 Year paper, while ignoring the belly of the curve? We hope to find out during the upcoming 3, 10 and 30 Year auctions, which will confirm if central banks have a maurity target, or if today was just a poor day for the US bond market when it comes to foreign central bankers bidding it up.
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Tsk, needs more secret sauce. This'll be interesting depending on the other auctions.....
WHO BOUGHT?
SURELY NOT CHINA OR RUSSIA.
'BLICS'...?
Well, it's about time. That whole "China is selling TSYs hand over fist" meme was looking like it was starting to leak water pretty bad.
The article says nothing about China, putz.
No, it says "central banks" in the generic sense. Of which the PBOC is one. If their demand dries up (because they have flipped into into sell-mode instead of their historical buy-mode) that will affect the overall demand for TSYs, would it not? No smoking gun, but you'd think you'd at least see a dip in indirect take-down. Which didn't happen the two most recent auctions, but did in this one.
Just trying to connect a few dots, same as everyone else.
While the recent ZH technical article about China selling TSYs was a tour-de-force (and I said so in the comments section at the time) it doesn't mean I accept everything as settled science and never question it again. I look for other areas of confirmation to see if reality triangluates with the story.
What do you do?
Getting a large crowd around the (short end) emergency exits.
Little do they know its really an open elevator shaft.
Just needs one to yell fire.
Doesn't it come down to whether the PBOC wants to peg the yuan to the dollar?
I'm cornfused, why not publish who bought all this worthless debt?
I don't make that assuption.
If you do, then you're an idiot.
He called you a putz!
I've been called a lot worse. And I've usually deserved it.
At least he didn't call you 'schmuck'... that would be crossing the yiddish line.
I wonder who is buying too.....its not me....
7 years are always sloppy auctions. Orphaned bitch slap part of the curve. BTW, the 7 year was an abortion of Jon Corzine and Goldman (with the Treasury's ear in the advisory committee) way back when. In the Olde Days, GS's forte in the bond market was in intermediate corporates, which needed another benchmark beside the 10 year and oui voila!, along came the 7's.
Just a little history for you youngins
7 year should be the max on any fixed loan...
There is a point when atificially dumping on a major commodity that oppertunity will be seen and I believe that the dump on gold has loosened up some physical, thus bonds don't look so good to some of the large investors. They will hold cash and wait for a beter return and buy some gold.