Soaring Direct Demand for 7Y Treasury Suggests Great Rotation May Be Ending

While we previously observed the dramatic plunge in repo rates for 5 Year Treasuries, which after yesetrday's stellar auction turned even more "special" hitting a near record -250 bps for off the run issues in repo this morning...

... the 7 Year has been far less subdued, without a clear short interest pressing the bond heading into today's auction.

However that did not prevent it from pricing at a blistering 2.284% moments ago, stopping through the WI 2.304% by a whopping 2 bps, the highest since January.

The internals were quite strong, with the Bid to Cover coming in at 2.55, above the 6MMA of 2.50, if fractionally less than the 2.68 from last month which was the highest in years. In terms of buyer breakdown, while Indirects took down 64% of the paper, or in line with average, it was the surge in the Direct bid, who took down 19% of the final allotment, or the most since August 2014, that led to Dealers taking down just 17.04% of the auction, the second lowest on record, and higher only than the 16% from January of this year.

And now that we have both the blockbuster 5Y auction in hand, and the similarly as impressive 7Y in the rear view mirror, all those who have warned that buyers are abandoning the Treasury asset class in their great rotation toward equities, make want to re-evealute their thesis: if anything, coupled with the Fed's custody data, the recent auctions confirm that heading into 2017, the one "Great Rotation" to focus on is the inverse one.