Today's 10 year $21 billion auction closed at 3.388%, an increase from last month's 3.34% and the highest since May 2010. The Bid To Cover came at a strong 3.30 compared to the one year average 3.12, and much better compared to last month's 2.92. The reason for the strong auction, which has caused 10 Years to pare their losses on the day is that indirect bidding jumped, and took down a whopping 53.6%. Just as importantly is that Primary Dealers, read the Fed's shell intermediaries, bought just 31.6% of the auction (with 14.9% going to Directs): this is the lowest primary dealer take down ever (at least according to our database)! This is very surprising as the Fed continues to have to monetize every single auction eventually, which means that China et al, who make up the indirect bidder roster, will have to flip their bonds to the Fed sooner or later, presumably at a profit. This also confirms our observations that PDs have become allergic to US paper in recent week, with PD UST holdings plunging by a stunning $70+ billion since late November. This trend appears to not be reversing for now.
$21 Billion 10 Year Auction Closes At 3.39%, As Primary Dealer Take Down Is Lowest Ever
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