As we documented previously, one of the best ways to determine if a given Treasury auction will be strong is to look at the implied short overhang heading into the auction courtesy of Repo rates. Earlier today, ahead of today's $26 billion auction, the 2Y was trading -0.27% in repo: not too shorted, but judging by the results of the just concluded auction, shorted enough.
The results: a high yield of 0.648%, pricing through the When issued 0.649% by the smallest possible increment, which was the highest yield for 2Y primary issuance in 2015 and the highest since December's 0.703%.
The Bid to Cover rose modestly from April's ugly 3.300 to 3.396, just under the TTM average of 3.42. Directs got a higher than average chunk at 17.2%, which left Indirects with 42.3% and Dealers holding 40.5%.
[4]
Overall, a strong auction, and one that has sent the bond complex yields even lower in its aftermath, suggesting that indeed there was quite a bit of wrong-way positioning headed into the auction especially following today's "strong" economic news.
