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Schizophrenic 2 Year Auction Results In Huge Short Squeeze Despite Slumping Fundamentals
Moments before today's 2 Year auction we made a simple prediction:
2Y trading super special: should price well through WI
— zerohedge (@zerohedge) December 28, 2015
The reason for this forecast: as we have repeatedly shown in the past, any time a given CUSIP is trading super special in repo (lack of underlying collateral) just ahead of its auction, there always is a panic scramble to cover shorts into the auction, leading to a super strong high yield relative to the When Issued. And, as the SMRA table below shows, the 2 Year was trading about as special as can be, hitting -2.15% in repo earlier today after trading super special for the past week.

Sure enough, when the When Issued data hit minutes ahead of the auction pricing, we were expecting a number well through the 1.073% When Issued.
This is precisely what happened as the Treasury confirmed moments ago when it announced it had sold $26 billion in 2 Year notes at a yield of 1.056% , a whopping 1.7 bps through the When Issued: just like that, the short squeeze worked again.
That, however, is as good as it gets for today's short end issuance, because all the other metrics were quite terrible: the Bid to Cover plunged to just 2.796 (52.7% allotted at high, the highest stopout rate since December 2009) from 3.154 a month ago, and the lowest BTC since August of 2009!
Furthermore, the internals were even more confusing: while Indirects took down only 37.5%, or the lowest since December of 2014, it was the Directs who couldn't get enough and took down a whopping 27.1% of the final allottment, the highest since December of 2013, and nearly double the TTM average of 14.0%
Finally, this means Dealers were left holding 35.4%, about 5% below the 12 month average.
Overall, a schziophrenic auction, with substantial strength driven into the deadline on the back of technicals courtesy of a massive short squeeze, even as fundamentals spooked foreign central banks, leaving domestic bidders to bid up whatever paper they could find.
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All i know is the afternoon stock ramp has started and we will be green by the end of the day come hell or high water!
YIPPPEEEEEEE!!
Things are shiny forever and I can hardly wait till next year.......
Bullish because well because....
How long can this shit storm continue without cliff-diving?
Seriously. How FUCKING long?
Seriously, how stupid do you have to be to short treasuries? What part about we are Japan don't these idiots get?
Somehow, whenever I see the word 'repo', I think of 'Repo-man' - as in Re-Possession. As in, you're Bankrupt and I'm taking your shit to cover my losses. Isn't that how it's supposed to work...? Perhaps there is some irony in all this, dunno...
"There is no spoon" Morphious
There is no bond market, and sure as hell, no stock market
just a most rigged, thinly traded, casino where central banks take turns buying futures contracts in a desperate effort to give the illusion of economic strength. Jail would be far too nice of a fate for these crooks. Ready the guillotines.
You attributed your quote to the wrong person. It wasn't Morphius who said it, it was Spoon boy when Neo went to visit the Oracle.
https://youtu.be/dzm8kTIj_0M
Please disperse! Nothing to see here!!!
http://i.imgur.com/OXqTvVO.gif
This is precisely what happened as the Treasury confirmed moments ago when it announced it had sold $26 billion in 2 Year notes at a yield of 1.056% , a whopping 1.7 bps through the When Issued: just like that, the short squeeze worked again.
That means the Federal Government made $26 billion in trading promises to deliver something in two years (and return these certificates they created). What are they going to do with that $26 billion? I'm sure a huge portion of it is going to pay off trading promises they made two and more years ago ... and never delivered. That's a roll over.
A roll over is a DEFAULT. To avoid an INFLATION effect (i.e. non zero inflation), INTEREST must be collected (i.e. paid by the government or other traders) equal to the DEFAULT. Government pays nowhere near enough interest to match their defaults.
Governments don't ever deliver on their trading promises. They are virtually financed by counterfeiting that is mitigated by INFLATION which you and I pay for. That "is" the problem. Not too much debt! Not a shortage of capital! Not insufficient savings! Not mis-allocation of resources! Not absence of "sound" money. It's counterfeiting by the government that is the problem. And it dwarfs all other problems combined.
The bond market is where the big fish swim, and the skimming of real $$ takes place.
The repo market is the wild wild west. Yikes. Enter at your own peril (you obviously know this).
But you'll never hear Lou Dobbs or Liesman talking about that dirty little secret.
Lest we forget that POMO means Permanent open market operations, not Temporary open market operations.
<I'm drunk>
Merry Xmas all.
Actually I don't understand the bond market. How in the world can you make significant money at such low interest rate spreads?
Then my brother explained real estate leverage (a small down payment controls a huge inflation generated appreciation) and it became a little more clear. Is it any wonder they won't install a process that guarantees zero inflation?
And then we have the banks with the privilege of leveraging by a factor of ten ... by design.
How much more don't I know about what's really going on and the privileges some have over me. My career efforts have been about improving processes and efficiencies ... not about gaming and cheating.
That's why I think it's interesting to ponder a world with an MOE with zero inflation (of the media itself). Real estate becomes a whole new ballgame. So does most of finance. How much can you diddle 1+i raised to the nth power when "i" is guaranteed to be zero?
As I understand it at a positive repo rate the money supply contracts thus tightening (to prevent further inflation). A negative repo rate would increase the money supply (create inflation). But you never know what the bitchez brewin. What they let us know is not always what is happening exactly, merely a facade.