If yesterday's strong 3 Year auction caught the hordes of shorts unaware, sending the repo rate plunging from a super special -1.7% to positive, today's just concluded 10 Year auction was nothing short of epic, in virtually every possible way.
The auction priced at 2.237%, through the When Issued 2.255% by a whopping 1.8bps, with a 2.72 Bid to Cover, the highest of any auction in 2015. The internals were just as impressive, with Indirects taking down a massive 60.2%, the highest since December 2011, and even Directs joining the fray and allotted 20.9% or more than the Dealers whose final allotment of just 18.9% was the second lowest ever.
In short, after the past two days of auctions any fears that there is a secular drop in demand for US Treasurys can promptly disappear... if only until tomorrow's 30 Year which may well fare quite a bit worse if indeed there are concerns about the long-term viability of the deflation trade.
On the other hand, continued strength in the primary market will mean that contrary to the ECB's attempts to instill fear about bonds, the demand for deflation protection is alive and well.
As for right now, it is clear that the bond market breathed a sigh of relief once the high yield hit the tape.


