If the recent batch of longer-dated Treasury auctions were a barnburner with unprecedented demand for "high quality" collateral with duration longer than 3 years, then today's just concluded 2 Year issuance was somewhat more tame: moments ago the Treasury sold $27 billion in 2 year paper at a yield of .703%, 1 basis point inside the .713% When Issued. Still, this was the highest yield on 2 Year paper since March 2011.
The internals were not quite as exciting, with the Bid to Cover sliding from 3.714 to 3.208, even if this has been broadly in line with the jagged range observed in the past year. Demand was mixed, with Directs taking down 14.54%, less than the 16% or more from the prior three auctions, and below the 19.7% 12 month average. Indirects were left with 35.65% of the paper, in line with last month and while higher than the TTM average, is below strong Indirect take downs seen since August. Finally, this means Dealers were left with just under 50%.
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In short, the curve flattening continues, with bond buyers concerned what happens to the short end if/when the Fed starts hiking, and instead shifting their bets further down the curve where the Fed's ability to influence prices in a hiking cycle (especially one coupled with a multi-trillion shortage of high quality collateral) is somewhat less than in the short-end.
