When we commented on yesterday's 5 year auction, most remarkable for a surge in 5 Year Direct awards to a stunning 30%, which in turn followed a record low Indirect takedown, we wondered if "there some major shift in the underlying dynamics for US paper based on these recent results? You bet. What is said shift? We hope to find out soon enough." Today, we still can't confirm what the reason for said shift is, but we can certainly confirm that the same pattern continues, as the US Treasury just sold its monthly $29 billion allotment of 7 Year paper, at a high yield of 1.233%, well above November's 1.05%, and a bid to cover of 2.72, just below the TTM average of 2.75, but the most notable feature was that just like yesterday, the Direct award was the highest in series history, at a whopping 23.11%, and above last month's 19.71%, which also was a record. There is a distinct shift in awards to Direct bidders, especially with PDs getting just 37%, the lowest since December 2010. Just who these bidders are, and is this merely a year end window dressing phenomenon, seen periodically when money managers need quality collateral for year end purposes, remains unclear. Keep an eye on the Direct bid in the January auction to see if the trend persists. If it does, it may be time to ask some questions.
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