No QE, No Problem: Despite Drop In Indirect Interest, $32 Billion 3 Year Prices Better Than Expected

With the When Issued trading at 0.688% just before 1pm, some were expecting a relatively weak 3 Year auction to price. Instead, the Treasury managed to place the $32 billion in paper at a new 2011 low yield of 0.67%, nearly 2 bps inside the WI. The Bid To Cover was nothing to wrote home about at 3.219, the lowest since February, although certainly not a bad number. There was little else to cheer about: Dealers took down 49% of the total, with the Indirect share declining once again, from 35.6% to 34.5%. The offset was a surge in Directs bids which were responsible for 16.5% of the auction, the highest of 2011. Whether this is merely London-based Chinese proxies, or some other Vince Reinhartian contraption keeping rates low, is unknown. As a result of the auction which many were quite nervous about, the Green eurodollar pack was down 1.75 bps as was the Red (down 1.75 bps) and White (1 bp) after the auction after being down 3.5, 3 and 1.25 bps before the auction. Bottom line: good appearance by the Dealers in the post QE2 era. The question now is who do they offload to.


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