Heading into last month’s 10 Year auction, there was a surprising development: the 10Y paper was trading super special in repo as a result of pervasive shortages. This time, however, this did not happen and in fact after trading tight in repo, earlier today, 10Y actually had a positive sign suggesting perhaps some weakness going into today’s auction.
However, all fears were laid to rest moments ago when the Treasury announced the results of today’s 10Y reopening: printing at a high yield of 1.702%, this not only stopped through the 1.708% when issued, but was the lowest yield for a 10 Year auction since December 2012. Furthermore, the Bid to Cover, rebounded from last month’s 2.68 and printed at 2.70, above the six month average of 2.65.
But once again the biggest action was in the internals, where Indirects Took down a whopping 73.6%, higher than last month’s 73.5% and the highest on record. Directs were left with 7.2%, the lowest since last August, while Dealers ended up with only 19.2% of the issue.
We can conclude that the insatiable foreign appetite for US paper, especially at auction, continues, and will continue to do so as a result of rate differentials between trillions in NIRPing foreign bonds and US paper.
Finally, the bond market was quite happy with the result, and yields have dropped to new LODs after the announcement.
Judging by the action in both stocks and bonds, it would appear that the market is positioned not for rate hikes here but for more QE.
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