Primary Dealers Save Weak 5 Year Auction
There was nothing pretty about today's 5 Year auction, which confirmed the trend of weak bond auctions started with yesterday's 2 Year issuance. Pricing at 0.752%, superficially it was only the second lowest yield ever for a 5 Year bond. However, with the When Issued trading at 0.734%, the tail was surprisingly wide for US paper which had not seen a such a big miss from market implied prices in many months. Add the Bid To Cover of 2.61, which was the lowest since June 2011, and things start to get really ugly. Finally observe the take down which saw Indirects account for only 35.1% or the least since February 2011, forcing Directs to load up with even more paper they don't want or need courtesy of the Twist extension through year end (meaning Dealers are stuck buying up all the Fed's unwanted paper in the short-end), forcing them to take down 54.1% of the auction, or the most since February 2011 also, and one can see why Rick Santelli gave the auction a barely passing grade of D. And with these two auctions, and tomorrow's 7 Year issuance, net US debt will be a solid $50 billion greater next week when all the bonds price, and rapidly on its was to $16 trillion, which should be breached in just under 6 weeks time.
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