Ahead of today's 10Y auction, some rates pundits speculated that the auction would be another blockbuster affair like yesterday's 3Y if for no other reason than the special, -0.1% rate 10Y notes earned in the repo market suggesting the short overhang is once again extensive and there would be a short covering during the actual auction.
And while that may have been the case before today's session, the sharp drop in yields across the curve as inflation fears faded after today's CPI print, meant that it would be virtually impossible to get a non-tailing auction and sure enough, moments ago the Treasury completed the sale of $36BN in the 9-year 10-month reopening of cusip CDJ7, which priced at 1.723%, tailing the When Issued 1.720% by 0.3bps, making this the third consecutive tailing 10Y auction following the end of 6 consecutive stop throughs. The yield was just over 20bps higher than the 1.518% from December 2021 and also the highest since Jan 2020.
The bid to cover of 2.51 was modestly above December's 2.43 and was right on top of the 2.50 6-auction average.
The internals were also mixed, with Indirects - a/k/a foreign buyers - taking down just 65.5%, which was below last month's 68.8%, below the 70.5% recent average, and the lowest since July. And with Directs taking down 17.9%, which was virtually unchanged from last month's 17.8%, dealers were left with 16.6%, the highest since July.
Overall, a disappointing auction if hardly weak in the context of today's sharp repricing in yields.