First thing this morning [2], when previewing the key event of the day, namely today's auction of $29 billion in 7 Year Treasurys, we said that "with the issue not anywhere close to trading "special" in repo, the risk for a big tail - like in yesterday's 5Y auction - is high."
Specifically, we were looking at the 0.45% repo rate on the 7 Year yesterday and today, which was the highest across the entire curve, suggesting absolutely no short covering would take place into today's auction.
And, just like yesterday, when we again correctly predicted the tail on the 5Year (following the very strong squeeze into the 2Year the day before) moments ago we got just what we expected when the Treasury announced that it had sold the $29 billion of Cusip N30 at a yield of 2.161%, the highest since September 2014, but more importantly tailing 0.5 bps to the 2.156% When Issued.
The internals again downright nasty once again, with the Bid to Cover once again sliding from 2.51 to 2.35, the lowest since March, while the Dealer takedown jumped to 38.8% (far above the 30.5% last month), as a result of a substantial drop in Indirects who took only 47.1% of the auction, the lowest since October 2014.
[3]
And, just like after yesterday's ugly 5 Year auction, the entire curve has sold off in a parallel move as concerns foreign reserve managers have little to zero appetite for US paper, and certainly for primary issuance, quietly spread.
