Yet Another Direct Bidder Avalanche Pushes $35 Billion 2 Year Auction Through The Finish Line

Just like in previous auctions post the end of QE2, so today's just concluded $35 billion 2 Year auction closed off with Direct Bidders once again surging to take down nearly as much as the Indirects. Foreign institutions (Indirects) were responsible for 27.67% of the total allocation, while Directs rose from 13.53% to 20.03%: Chinese proxies, Fed, who knows. It wasn't dealers, who supposedly took down just over half or 52.30% of the auction. Otherwise, the bond priced at a 0.417% high yield, modestly higher than June's 0.395% same with the Bid To Cover, which came at 3.14, just higher than the 3.08 previously. With the When Issued trading at 0.42% there were no major surprises into the pricing. Overall, nothing notable except for the increasing role that Direct Bidders continue to play in each and every issuance now that the Fed is briefly not monetizing treasury debt. We expect more of the same in the remaining 5 and 7 auctions in the balance of the week.And an amsuing comment from TD's Richard Gilhooly: "Given the bid in the Treasury market today as spreads widen in Agency paper and mortgages, belatedly in swap spreads, it would suggest that we are seeing an ironic flight to quality into the asset class that is at risk of downgrade." Yeah, who cares though.


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