Weak 10 Year Auction Saved By Primary Dealers Taking Down Most Since May 2009

Tyler Durden's picture

Today's $21 billion 10 Year reopening was not pretty. First, the tail was a notable 3 bps with the When Issued trading at 2.24%, ahead of the auction pricing a disappointing 2.27%, well above the record low 2.00% from September, although still materially lower than average yields in the past year. As troubling was the Bid To Cover which came at 2.86 or the lowest since November 2010's 2.80 (compared to the LTM 3.10). Then looking at the internals should be a cause of concern for anyone who believes that China will not retaliate for the currency bill passed yesterday by Congress, after Indirects took down just 35.0% of the full $21 billion, the lowest since February 2010, at a 81% hit rate. Directs also showed very little interest in the bond taking down only 6.4% compared to an LTM average of 10.7% (and the previous 11%). Who was the savior? The recently expanded Primary Dealers of course, which took down 58.5, the most since May 2009. Overall, an ugly auction although whether the reason for the weak demand is due to inflation expectations returning, or a capital reallocation from bonds into other assets, is for now unknown.

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Aunty Christ's picture

And just like that, SPY is yielding less than 10 year Treasuries

GeneMarchbanks's picture

Or China finally walkin' the walk.

CClarity's picture

Probably both tightening expectation in US and reallocation of Chinese to Greek bonds.  Even with a 90% haircut, they look attractive relative to US, and the European talk is only 50-60% haircut.  

Also, bloom is off Op Twist.  Tomorrow's auction could be interesting.  10 yr was pretty stinky.  End of bullish bonds?  Time for bullish equities? Real estate? Back to comoodities?  Good reasons to have some cash (fiat though it is) while this shakes out.

long-shorty's picture

Can you please explain to me how a bond with a 4.5% coupon trading near 40 is attractive vs. U.S. bonds if you thought the terms of the bond were going to be changed to 4.5% on 10?

Or were you planning on a 50% haircut for U.S. bonds in your comparison?

bugs_'s picture

nobody to front run

bogey4's picture

That's what the primary dealers are there for - to buy all the notes nobody else wants.  That's why they get to be primary dealers.

CClarity's picture

Exactly!  I used to trade for one and I had to always put in multiple bids.  The good bid for the amount I actually wanted to buy (usually covering shorts I'd set up unless market was on fire), a bid at a price I thought I'd be happy to own them (briefly, to sell to institutional and retail buyers), and well back just to prove my willingness to support the system.  If shop didn't bid enough routinely, the primary dealershp would be revoked.  

Today, those bids at 2.27 weren't planning to buy but are okay with and are still unloading for a profit right now.  But remember, that means plenty bought at 2.24, 2.25, 2.26 as well. 2.271 is just where the last of the $21B were bought.  

slackrabbit's picture

this is good....why..because ....welll....we the elite say soo.....now back to X Factor...where we measure who is the most useless, and we vote for them - that way teh fat useless people people feel better.

'I could have been a contender, but I have these fries to finish'!

SparkySC's picture

LOL  sure it was weak.


Looks like on the scoreboard of wall street it was just fine.


Once again.



Way to go ZH you've missed out on 10%-12% in a few weeks now.

Okay Doomsaying Bozo's

tekhneek's picture

Congratulations fuck face! You're still net negative in inflation adjusted terms!

/sarc on

Keep buying, it will go up forever! Buy buy buy! QE3 is coming! The recovery is here at last!

/sarc off

tarsubil's picture

On Jan 14th, 2000, the Dow closed at 11722.

Lednbrass's picture

Way to illustrate that you have absolutely no concept of whats going on.

Hepefully you have the courage of your convictions, take out a second mortgage and put everything into stocks, or as pointed out above sub inflation rate bonds.  Invest your retirement money down to the last dime- its all going to the moon. No doubt you will make a killing, yes?

Hedgetard55's picture

Just as the giant Krell furnaces would generate any amount of power needed to for the id monster to melt the door made from 24 inches of solid Krell metal, so Benocide will print whatever amount of money is neccessary to make sure an auction never fails.

Belarus's picture

Overall, an ugly auction although whether the reason for the weak demand is due to inflation expectations returning, or a capital reallocation from bonds into other assets, is for now unknown.

The answer is very known: there is not enough capital in the world to keep funding our unfunded deficits, at which point this is all the auctions really are: unfunded deficit spending trying to get plugged. Expect to continue to see weak bidding by indirects as China spends surpluses on Chinese banks, Europe having its own funding situation, Japan broke, the Federal Reserve not LSAP'ing, and U.S. tax-paying idiots gobbling up stocks because the great growth story has not arrived but are being purely suckered in by this manufactored rise in equities.

The great irony: when Treasuries actually go bidless and chaos ensues, the sheep will sell stocks and help plug the gap as equities begin their eloquent decline. 

The other great irony? If you truly want a great CAGR (compounded average growth rate -   for those lacking in financial jardon) and want to think long term returns and strong compounded buy and hold like resutls: shorting long term treasuries should produce no less than 15-20% compounded returns over the next 3 years. Take that Ben, Congress, and all you other scumsuckers who think you have it all under control.

slewie the pi-rat's picture

$ 21 Billion?

chump change!

the newly-printed or newly-received  money is disappearing damned pretty fast, at this point, it seems.  they have the "economic term" 'velocity of money';  may i suggest from slewie-nomics:  the vaporiZation of money, aka pouring debt gasoline on a raging debt fire?

wait till the calendar gets rolling and the new year approaches the repo markets in europe:   those dollars-for-dogshit are buying euros & francs recently?  bullish for stocks? 

Dr. Chairsatan's Wild Ride~~coming off the tracks in a location near you, soon?

doncha just love it when a plan comes together, BiCheZ?

mailll's picture

Who are the primary dealers again?