The most notable fact about today's $29 billion auction of 2 Year Notes was that the final yield of 0.544%, which stopped through the 0.546% When Issued, is that this was the highest auction yield since May of 2011 when the paper, since matured, priced at 0.56%. Considering some at the Fed anticipate the Fed Funds rate hitting over 4% by the time this bond is supposed to mature, either the Fed hawks or the market is wrong.
The other notable findings in today's auction: the Bid to Cover dipped modestly from 3.231% to 3.220%, below the 3.36 TTM average. But it was the take down where we found that Direct allottment dropped from 23.3% to 14.35%, the lowest since May 2013. And since Indirects were generally flat here compared to June, taking down 27%, this means that Dealers had to step in and ended up with 58.7% of the final allocation.
Overall, an uneventful auction and certainly nothing to spook the bond market that that bond bubble which the sellsiders have been scraming about (but not stock bubble, never a stock bubble) is anywhere closer to popping. And why would it: with high quality collateral scarcer now than ever before, expect to see many more such surprises in the months if not years to come.
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