In light of today's dramatic risk reversal which saw futures plunge overnight only to U-turn and soar alongside oil, many rates watchers were concerned that absent substantial concessions today's 2 Year auction would be problematic to say the least. And with the When Issued coming in at 0.873% at 1pm, today's auction already had all the makings of the strongest 2Y since October when the high yield closed at 0.824%.
So when the high yield print on the 2Y auction flashed at 0.86% (alloted 97.03% at the high) there were loud gasps of surprise at what can only be described as a blistering demand, especially from foreign central banks, and one which stood at odds with the rest of the market tone today, especially when considering that no issues were trading special in repo earlier today, and certainly not the 2Y.
And while the Bid to cover was not nearly as exciting and was only the second lowest since 2009, it was the surge in the Indirect takedown that was the most surprising, because at 57.9%, this was a whopper, 20% higher than the 37.5% recorded a month ago, and the second highest in auction history, lower only than the 68.7% recorded in June of 2009, indicating that at least some foreign central banks could hardly wait before parking some of their reserves in US paper. The rest of the takedown went 12.3% to Directs and 29.9% to Dealers.
In summary, an unexpected show of force on the short-end of the curve, and perhaps confirmation that despite today's latest oil short squeeze, which has pushed all risk assets higher, the real money just couldn't wait to get into US paper...