Spectacular, Blowout 7Y Auction Stops-Through With Best Metrics Since March 2020 Covid Crisis Peak

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by Tyler Durden
Thursday, May 26, 2022 - 05:58 PM

After two solid auctions, when demand for both 2Y and 5Y paper was well above average, moments ago the Treasury concluded the week's final coupon auction when it sold $42 billion in 7Y bellybusters in what was one of the strongest "curve belly" auctions on record.

The auction priced at the highly appropriate 2.777%, which was a sharp drop from last month's 2.908 and also stopped through the When Issued 2.801 by 2.4bps, the biggest stop through since the March 2020 covid crisis peak.

The bid to cover surged from 2.41 in April to a whopping 2.69, also the highest since March 2020 (and naturally well above the six-auction average of 2.37).

The internals were even more remarkable: while Indirects soared to 77.86%, the second highest on record and runner up only to the 82.7% in April 2017, Directs took down a below average 15.8% which left Dealers holdings a record low 6.4% (to be expected in a world where they can't flip and sell the same bonds to the Fed making a risk-free profit).

Overall, this was a spectacular 7Y auction, and about as far from that infamous Feb 21 7Y sale as one can get. In fact, one can argue that whereas that particular auction was a consequence of fears of rising rates, today's auction was the result of the market's realization that the Fed has over-tightened, and that a pause is coming, and as Rabobank put it today "If You Believe The Fed Will Pause Hiking Soon, Go Long Every Bond And Every Commodity You Can Find."

Someone clearly believes just that.