It just never fails.
Earlier today, the 3 Year was the only place on the curve that was trading special in repo, at a rate of -0.35% as shown in the Stone McCarthy chart below, with no shortages at any other point:
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That, as regular readers know, has been a nearly flawless predictor of auction strength, and the potential for a short squeeze into the 1pm issuance.
Sure enough, moments ago with the When Issued for today's $24 billion in 3 Year paper trading at 1.188%, we were confident that as a result of the substantial short overhang, the auction would price well through the WI. It did so, and by a mile: the final high yield print was a whipping 1.174%, stopping some 1.4 bps through the When Issued.
So much for the pricing dynamics.
However, demand itself was scorching as well. While the Bid to Cover dipped modestly from 3.14 a month ago to 2.944, it was the surge in Indirect interest, aka foreign central banks, that made this auction memorable: at 62.8%, it was the highest since November 2009. And with Directs taking down 9.4% of the auction, it meant that Dealers would end up with just 27.8% of the final allocation: this in turn was the lowest since November 2009.
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And so, once again, we get vivid proof that whenever stocks are suffering from a Risk Off moment, investors continue to pile into the safety of US paper, be it in the primary or secondary market.
