Following hot on the heels of Austria’s record 70 Year bond issue, there was some concern if today’s 2Y Treasury auction would not fall flat on its face when the results printed at 1pm. However, it appears that just as there was demand for duration, so there was interest in “safety” paper, and as a result, the just concluded 2Y auction priced at 0.855%, 0.1bps inside the When Issued, which was also the highest yield on 2Y paper since May.
The internals were somewhat less flattering, however: the Bid to Cover dropped from last month’s 2.652 to 2.533, the lowest since July, and below the 6MMA of 2.73. But where the auction really slipped was in the takedown, which saw the Direct Bidders allotted 10%, below the 16% 6 month average, Indirects took down just 33.7%, leaving 56.2% to Dealers, the highest allocation to the group since July’s 60%.
That said, it is hardly surprising that demand for 2Y paper remains somewhat tepid, just over a month before the December FOMC meeting where the market is now largely convinced (>70%) Janet Yellen will hike rates by another 25 bps.
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