The mixed demand for near cash-equivalent paper continues, with today's $33 billion 2 Year Note [3]selling at a yield of 0.348%, stopping through the 3.55% When Issued by a solid 7 bps. That was the good news. The not so good news was that once again, the Bid to Cover was modest at best, down from 3.21 to 3.09, well below the 3.47 TTM average, and one of the lowest in the past four years. As we have noted repeatedly in the past, the Bids to Cover for virtually all auctions have been declining in recent months, and today was no exception. Additionally, while the Direct take down was stable at 21.8%, or just short of the 23.3% TTM average, it was the Indirects that continue to buy the near absolutely minimum, taking down another 25.4% in September, on top of the TTM average, and far below historical volumes. The balance, or 52.5% was once again allotted to Primary Dealers. Overall, nothing to write home about, especially since the bonds will be promptly converted into HQ collateral, and the cash infusion will allow those who bought the bonds to go ahead and reinvest the proceeds in other far riskier assets, even as the velocity of collateral picks up a tad at least until the bond is also monetized by the Fed.
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