We had absolutely no concern about the outcome of today's 5 Year auction: after all, when push comes to shove, Bill Gross who yesterday was pitching [9]5 Year bonds to Twitter, would have certainly bought up the entire issue. Yet we were surprised to find that Direct Bidders, among which such bond kings as PIMCO, tendered only $6 billion (a 47% hit rate) in bids into today's $35 billion auction [10]. Odd - could Bill Gross have been untruthful in expressing his interest in the bond and was merely looking for greater fools? Unpossible.
As for the auction itself, just like yesterday's 2 Year issuance, it was quite boring compared to what happened a month ago [11]. In fact, the July auction was virtually a carbon copy of June. The High Yield was 1.41, just pricing 0.2 bps through the 1.412 When Issued, just modestly tighter than last month's 1.484%. The Bid To Cover was 2.46, a fraction above the 2.45 last month, and before that it would have been the lowest BTC since 2009. The Internals also normalized, with Directs taking down 8.3% (surely all of them Bill Gross) compared to the LTM average of 14.8%, Indirects taking down 53.8%, also the highest since 2009, and the balance, or 37.8%, going to the Dealers.
[12]
Finally, just like yesterday's 2 Year, we expect CUSIP VQ0 to be promptly returned back to the Fed following a few monetization episodes: there are no collateral shortages involving the 5 Year point on the curve - now the 3 Year that's a different story.