The treasury auction confusion continues. After yesterday's 5 Year auction priced well weaker than expected, despite a negative repo rate of -0.85% which has actually gotten even more negative this morning dropping to -0.9%, things looked somewhat ominous for today's final for the week issuance of $29 billion in 7 year paper. And yet, moments ago the auction came out far stronger than expected, with the Treasury pricing at 2.153%, a solid 1.2 bps through the 2.165% When Issued, suggesting a far stronger demand into the pricing deadline.
This was confirmed if not so much by the Bid To Cover which dipped from 2.493 last month to 2.384, and down from the 2.49 average, but by the surge in Indirects, which took down a whopping 56.65% of the auction, which is the highest interests by Indirect bidders in the belly of the curve since the 64% sale to indirects in December 2010! Because when in trouble, who better to come to the rescue than foreign central banks.
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Yet what made the issuance special and most surprising is that contrary to the recent trend of negative repo rates resulting in sterling auctions, today the 7 Year was barely 0.00% in repo. Which makes us wonder: now that we pointed out the negative repo -> strong auction relationship, is this leading indicator now sadly, broken?
