Today's epic risk rally has been punctuated by something probably not all that surprising: a very weak $29 billion 7 Year auction, which has since dragged the entire bond curve even lower. The bond priced at a high yield of 1.791%, a notable 3 bps tail to the When Issued which was trading at 1.76 at 1 pm. But the internals are again where the action is: the Bid To Cover of 2.59 was the lowest in the series since the 2.26 back in May 2009! Additionally it appears that foreigners, either China or Europe, had very little desire to load up on this paper, with just 33.9% in Indirect Take Down, and a corresponding 86.9% hit ratio on the Indirects. So while Indirects came at the lowest since June, so the Primary Dealers took down the most since that month, at over half of the entire auction, or 54.15%. Directs also stepped up, bidding up 11.95% of the whole, compared to 8.95% last twelve auction average. And as the chart below shows, the disappointing auction has dragged the entire treasury complex lower in price. As a reminder, this bond auction brings total US debt to over $15 trillion, a number which would have resulted in a 100%+ debt/GDP using the Q2 GDP. As it sands, following today's update, the market has about $160 billion in capacity before that threshold is breached again.
7 Year monthly summary:
And entire UST curve post auction: