This week’s preceding 2 and 5 Year auctions, both tailing, were nothing to write home about, or as we characterized them “mediocre.” We also said that a big part of the reason may have been the overhang from yesterday’s Fed decision. But now that the Fed is out of the picture for 2 months, the real shape of the primary TSY market could show itself and sure enough it did with blistering demand for today’s $28 billion in 7 Year paper.
With a high yield of 1.634%, this stopped through the When Issued by a notable 1 bp. The Bid to Cover was also strong, jumping from 2.505 to 2.652, the highest February 2014.
Finally, the internals were certainly impressive, with Indirects taking down 65.55% of the auction, up from last month’s 57.9% and the highest since January’s record 69.38%, which also meant the third highest Indirect take down on record. And since Directs ended up with 14.22% of the paper, this mean that Dealers were left with just 20.23% of the final allotment, the second lowest on record.
It appears that when a potentially hawkish Fed is out of the picture, there continues to be no shortage of demand, especially coming from offshore, for US paper.
Surprisingly (or perhaps not) as the yield curve snapped lower on the strong auction results, so did stocks.
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