Just like in yesterday's 3 Year bond auction, the surface results belie the fireworks within the internals in today's auction. First, the superficial data: the $24 billion in 10 Years came at a 3.67% high yield, the highest since April 2010 (around the time the market starting nosediving and had to be rescued from a double dip through QE2). The Bid To Cover was 3.23, compared to 3.3 previously and 3.17 LTM average, so nothing special, right? Wrong. The take down is where the true story is: after Indirect interest in yesterday's 3 Year bond plunged to a multi-year low, today nothing could be further from the truth as the Indirect Take down was an all time high 71.3%, with foreign central banks taking down $17 billion of the $24 billion total. And maybe even more curious was that for the first time in over 2 years, the Direct Bidders were virtually non-existent, taking down a tiny $118K of the $24 million or about 0.5%. Compare this to the 14.9% in the last auction, and the 12.21% in the last twelve auctions, and a big red alarm should be going off. Basically, someone said "No Directs" in today's auction: the hit rate was a ridiculous 2.2%! Something major has changed in the auction dynamics and it started with yesterday's 3 Year. We wish someone smarter than us could explain to us how there is such a huge aversion to the short end by Indirects, and such a sudden love affair to the 10 Year, coupled with the complete expiration of the Direct bid.
On the chart below note the major surge in the red bar (Indirects) and the collapse in the green one (Directs).
As for the pricing, itsouttahere: