Record Direct Takedown Leads To Huge Demand For 7 Year Bond Auction, Disproves "Rotation From Bonds Into Stocks "

Tyler Durden's picture

While this week's two previous auctions were uneventful and very much unimpressive, today's 7 Year $29 billion issue continues to show that the bulk of the curve action continues to be at the belly. Unlike January's spotty 7 Year auction which saw a massive 56.64% in Primary Dealer take down, today's was the opposite, with the auction pricing a whopping 3 bps inside of the When Issued at 1.418%, with Dealers taking down just 38.89%, well below the TTM average 47.46%. This was the lowest Dealer take down since December 2010.  The Indirect Bid was well higher than in January when as we already noted previously foreign investors were dumping US paper, yet at 41.85% was just in line with the TTM average of 41.54%. The big outlier however was the Direct Bid take down which soared from 11.59% to a massive 19.27% take down - a low 44% hit rate on the Direct Bid. Why the huge shift in sentiment toward US paper? It hardly has anything to do with the yield rising from a meager 1.36% to a just barely higher 1.42%. And yet, there was a tangible change in Direct interest - is it merely PIMCO buying up more paper? Most likely - this is perfectly aligned with the fund's recent average effective duration so we would not be surprised if Bill Gross is now loading up on the belly. The result of the super strong auction is the entire treasury curve sliding in yield, as it indicates that the wholesale expectation of a shift away from Treasurys and pushing into stocks, is nowhere to be seen. And stepping back from the tree, the forest now stands at just under 101.5% debt/to US GDP. Many more auctions coming.

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GOSPLAN HERO's picture

Buy gold and silver ... you'll sleep better.


CrashisOptimistic's picture

Gold and silver get stolen.  That doesn't make for calm sleep.

Bonds . . . are the hated 0s and 1s and they've done very well "risk free" for a very long time.

None of which matters.  All that matters is US Treasuries remain the global definition of safe haven and there is nothing anyone can do about that.

spartan117's picture

Well, when you're earning 650% interest on Greek bonds, you gotta put that money somewhere.

redpill's picture

Even using the phony government inflation statistics, you'd still be losing 0.5% in purchasing power every year you held this bond.  Just goes to show how completely assinine things can become when you allow a central bank to price fix time and money.

CrashisOptimistic's picture

There is no growth.  Oil won't allow it.

There will be no growth.  Oil will never allow it again.

Rates are low.  They can go lower.  They can go negative.  If they do, you make money on capital gains, not just interest.

redpill's picture

That's the point, it's come down to large corrupt banks flipping bonds for profit with borrowed money based on price fixing trends from the Fed.  It's a total debauchery of what a healthy bond market should look like in every way and it will be gratifying to finally watch it implode.

saywhat's picture

There are some interesting divergences today -- between Treasuries and Munis today...MUB is -2.5%, and Oil and the Trannies. 

Any thoughts??

TheSilverJournal's picture

Why wouldn't bonds be crushing it? US debt is so safe that the US will nevvver default and the debt is under control. Even in the lies of projections, debt is set to rise and rise and rise with deficits as far as the eye can see. And those negative real interest rates are so appealing because of the pure joy of loaning money to the US.

But seriously, yields can never be allowed to rise and instead must be brought down further if the money printers want to keep their ponzi going. Just a 2% rise in 30 yr yields will crush the housing market. Even if yields stay where they are, housing will continue its downward slide. Yields will fall from here not because of market forces, but because central planners will make sure of it.

J 457's picture

The SPX is so badly wanting to roll over and drop a few hundred points.  Any day now....

devo's picture

No story on today's silver move?

Bastiat's picture

Oh silver's volatile -- best to ignore it! 

Sophist Economicus's picture

And stepping back from the tree, the forest now stands at just under 101.5% debt/to US GDP


And, due to the massive printing of FRNs, alot further away from where we began our fun-filled woodland journey

CrashisOptimistic's picture

There is no question that US debt is gigantic.

There is also no doubt that there is nowhere else to hide.  Treasuries will be the last refuge.  Gold will never, ever pay for a tank of gas.  The pumps can't identify gold.  They can identify the magnetic stripe.  This is just reality.  It doesn't matter who thinks what is a store of value.  Magnetic strips will never represent X grams of gold becaues there is no infrastructure to establish such a thing and in an oil depleting world there will be no spare energy to create a gold based day to day method of paying for hostess twinkies.  You pay for those in dollars and always will.

The debt is gigantic.  At 16 trillion a single % rise would smash the fiscal budget $160 Billion.  Congress can't even take $4 billion out in one year.  They could never endure a $160 B smash, and so it will not be allowed.

Learn the lesson of 2011.  Governments will do anything to keep the juggled balls in the air.  If that means taxing gold on either a possession or a transaction basis, then all buys or sells of it will pay 40%,  and that is that.  They will tolerate no threats.  They killed Gadaffi.  They threw DSK in jail.  They gutted GM bond holders and they are about to gut Greek bond holders.  They Will Do Anything.  If they would do those acts, they will damn sure tax gold.

So just forget about it, unless you want to fund the deficit.

EyeQ's picture

Hey Crash - unfortunately you are right - it you profit from anything they will figure out a way to take it from you, hell, they may even take your gold 10 cents on the dollar - like greek debt.

Non-Zero's picture

Could someone explain to me who directs, indirects and primary dealers are please?

The only things I can find from Googling are that overseas investors are likely to be indirects?

Many thanks.

CrashisOptimistic's picture

The reporting changed during the Apocalypse of 2008/9.  Indirects are no longer clearly overseas buyers.

The PDs are banks (some non American) who are required to bid at each auction.

Google it that way.

lolmao500's picture

Goddamn ``investors`` are stupid... buying US paper... ridiculous.