What Bond Boycott: Foreign Demand In 10Y Auction Soars

Earlier today, Bill Gross claimed that there is "recent evidence showing that China is liquidating treasuries."  Well, we have yet to see where that evidence is - it certainly isn't on the Fed's custody holdings of Tsys which in December hit an all time high. And it certainly wasn't in the just concluded reopening auction of 9Y-10Month, where foreign demand was nothing short of stellar.

With the When Issued trading at 2.584% ahead today's 1pm auction, the sale of $20 billion in 10Y Notes stopped out at 2.579%, stopping through by 0.5 bps, confirming that today's sharp revulsion was promptly met with a desire to load up on US paper by foreign purchasers. The strength of the auction was also confirmed by the surging Bid to Cover, which jumped from 2.37 to 2.69, the highest since June 2016.

Finally, looking at the internals showed a remarkable spike in the Indirect, or foreign, award, which surged from 57.2% to 71.4%, the highest since August 2016, as foreigners seemingly couldn't get enough. Directs ended up with 6.5% of the final takedown while Dealers were left holdings a paltry 22%, the lowest Dealer award since March 2017.

Overall, if anyone wanted proof that foreign demand for US Treasurys is as strong as ever, then today's auction was the place to find it.