After a blockbuster, record-beating 10Y auction two weeks ago which wiped away most lingering fears of a reflation blow out, markets were bracing for a far weaker sale of $60 billion in 2Y notes at 1pm, if for no other reason than the uncertainty coming from Friday's J-Powell speech at J-Hole. They shouldn't have bothered because today's 2Y auction was nothing short of stellar.
Pricing at a high yield of 0.242%, the auction stopped through the 0.253% When Issued by 1.1bps, the biggest stop through for the relative boring auction going back all the way to April 2020.
The bid to cover was also solid, rising to 2.649, up from 2.471 and well above the 2.51 six-auction average.
But the most notable result was in the Internals, where Indirects took down a whopping 60.54%, up sharply from the already solid 52.76% last month and the highest going back all the way to June 2009!
And with Directs taking down a strong 21.18%, Dealers were left holding just 18.28%, the second lowest on record with just May 2016 lower.
Overall, this was a spectacular 2Y auction and one which quickly wiped away concerns that investors will step away from buying the short-end with a Fed taper on deck. The result: 10Y yields promptly slid from session highs even if they remained solidly higher on the day.