If last month's 2 Year auction was all sparks and fireworks, when the yield priced at a two year high coupled with a plunging Bid To Cover, then today's issuance of $35 billion in 2 Year [4]paper was all yawns and snoozes. Moments ago the Treasury issued another $35 billion in 2 Year near-cash equivalent bonds, at a 0.336% high yield, stopping through the When Issued 0.338% and slumping from the 0.43% in June, when the market was terrified that tapering means tightening (it does for the long-end, and for stocks but we will get there eventually), even if the Bid To Cover was barely unchanged, and at 3.08, it was only higher compared to the past two months' disastrous demand. Going further back would mean looking all the way back at 2 Year auctions from the summer of 2011, after which the BTC soared. In fact, the LTM average bid to cover is a far higher 3.61 although don't expect this to return at least no until the US has another "debt ceiling fiasco" type of event.
The internals was a snooze as well: Directs getting 16.4%, low by historical standards, but well above last month's 7.83%, Indirects dropping to 30.39% from 35.83% if better than the LTM average of 25.42%, and the balance as always going to Dealers who took down precisely the average they are used to, or just over half at 53.24%. Since there is no collateral shortage at the 2Y point on the curve, expect CUSIP VN7 to be promptly tendered back to the Fed in upcoming POMOs, with the usual bid/ask vig going to the PDs as is now normal.
[5]
Naturally, since the US has been at its debt ceiling max for several months now, it means that another $35 billion in G-Fund retirement capital (and other extension measures) will have to be "displaced" for the time being until the debt ceiling is raised once again, which should clarify to all those confused by how the US can issue debt yet have its debt unchanged for weeks and weeks on end.