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Foreign Central Banks Scramble To Buy 7 Year Treasurys: Highest Indirects Since 2010
When we summarized yesterday's very strong 5 Year auction, we previewed today's 7 year issuance as follows: "assuming no material changes in the demeanor of the market over the next 24 hours, expect tomorrow's 7Y auction to also proceed without a hitch. In fact, the more the general sense of risk-off, the stronger tomorrow's auction will likely be."
That's precisely what happened.
Moments ago the Treasury announced it sold $29 billion in 7 Year notes, at a yield of 1.813%, 0.1bps through the When Issued, the lowest yield on the belly of the curve since March 2015, with a Bid to Cover of 2.516, 6 bps higher than the TTM average of 2.45. But while the headline data was solid it was the internals that showed a dramatic surge in foreign central bank interest for this most convex on the curve paper, when Indirect Bidders took down 62.6%. This was the highest indirect bid since December 2010, which left just 8.9% for Directs and a paltry 28.5% for Dealers, the lowest since March 2014.
And with that another successful week of bond issuance concludes, which has to thank if not so much China selling than certainly Janet Yellen for spooking stocks and inciting a Great Unrotation from equities in bonds yet again.
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Wow! That be a good sign, usually; a strong 7 year, the bastard matutiry of the curve.
(Usually weak, tepid auctions.)
Yup - the 7yr is generally the weakest of all auctions.
Combine with EM FX weakness, geo-petro-political issues, flight to "safety".
NoVa
Yes siree Bob!
Perfect indica of " I don't care what the return ON my money is, all I care about is the return OF my money."
That being said, NoVa, I still wonder (Old dogs and no new tricks) why anybody'd want a 7? Kinda neither here nor there in terms of yield or duration space.
(Sounds like NoVa done went and traded some bonds over yonder there abouts. Take care how y'all talk out there or some folks'll think there's sumptin' not right witch ya'. They'll all be a sayin' he wuz one of them bond people. Explains a lot now, donit?)
We need NIRP auctions for the foriegn investors, just to be fair don'cha know......
Hey Knucks - back from work.
I think it is more of a flight to clean collateral than a flight to safety.
They'll take the 7s and 5s as duration fillers. How they work it all is beyond my pay grade.
Back to the salt mines -
NoVa
Very good point. Indeed, if the unraveling continues, even at a modest pace, a lot of "triggers" might be hit and additional collateral postings required.
Ah, such waning demand for treasuries (sarc ... best be considering negative rates) Even if they are the cleanest shirt in the hamper and to boot, yield more than our developed counterparts.
This is not investing in bonds, it is all flight to quality now but could cause this bond bubble to burst.
This is cool - Fed modeling (from a Goldman analysis) indicates that various factors have already produced tightening. The Dollar strength (from ZIRP encouraging a $10T dollar short aka offshore debt plus China slowing producing a commodity crash) has already effectively tightened policy WW. Here it is:
Gavyn Davies on macroeconomics
Financial conditions and a catch-22 for the Fed
(sign up for your free articles they are worth every penny)
http://blogs.ft.com/gavyndavies/2015/09/24/financial-conditions-and-a-ca...
"There is, however, a catch-22 with any attempt to use the FCI (financial conditions index) as a guide to setting monetary policy. Eventually, if the Fed really does want to tighten policy, it will have to follow through with its threat, or else the markets will undo the rise in the FCI as they realise that the Fed is bluffing. This is a game of chicken, a game with no unique equilibrium."
h/t Tim Duy tweet
there are lots of ways to restrict credit, which is the same as tightening. they could simply limit the supply but that is problematic from a fiscal standpoint.. they could talk about NIRP and get everyone buying up Treasuries which puts a bid under a lot of stuff no one really wants, or they could place a bid under all bond auctions at par or above. the rise in gold is perfect knee jert reaction to the threat of NIRP. when the carry charge on money equals the carry charge on gold buy gold.. anyone notice the primary dealers have been very quiet.
1.81% looks pretty good when you know NIRP is coming.
Yes! I am shocked, just shocked I tell you, okay, not really.
Yeah, a real shocker. It appears the William Dudley via the BIS was busy today buying that shit up.
this market is going to get very frothy as NIRP hysteria takes hold.