If the last two auctions, the 2 and 5 Year, were both wildly disappointing and confirmed what we had said that foreign central banks are no longer a strong demand presence in the short-end, today's 7 Year was a welcome surprise to anyone who is holding on to Treasury longs. Moments ago the 7 Year When Issued was trading at 1.939%, so when the 1.930% high yield print hit the tape, longs everywhere collectively exhaled in approval observing the 0.9 bps stop through. The internals were likewise strong, with the Bid to Cover of 2.526 highest since November's 2.635, as Indirects kept their take down flat, absorbing 50.84% of the auction as Directs took down 14.15%, the highest since January, leaving 35.00% to the Dealers.
[6]
And while this may be good news for the time being, the question is just how much more does China have to sell on the long-end, which is where the battering in the past week has been most profound. Expect much more fireworks next week when the 10Y and 30Y auctions are set to take place.
