While it is hard to call that any 3 year paper issuance, which prices at 0.347%, or the second lowest in history, and just wide of the When Issued, a weak auction, this is precisely what happened, as today's $32 billion 3 Year Notes [4]saw a big drop in the Bid To Cover to 3.302 from 3.729 previously, but more importantly saw Direct Bidders account for nearly two thirds of the total takedown, responsible for 63.8% of the entire allotment. This was the highest Primary Dealer allocation in three years, since January 2009, when the PDs were parking cash in the short end in droves as the equity market was imploding. Troubling was that Indirects took down just 27.7%, or tied with the lowest since 2006. And as a reminder, the PDs will take any and all paper they receive, and promptly flip it in the back hole of the shadow market's repo engine for something close to 100 cents on the dollar. Which means the real interest from end buyers for ZIRP-covered paper is getting less and less. Just as Bill Gross predicted. In other news, the US liquidity trap is alive and well.
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