It has been years since we have seen as dreadful a 10 Year auction as the just concluded sale of $20 billion in 10 Year paper.
With a high yield of 1.516%, the 10Y auction tailed a whopping 1.2bps to the When Issued, the biggest tail going back years.
Things got even worse when looking at the crashing Bid to Cover, which plunged from 2.70 just a month ago to a paltry 2.33, was the lowest since March of 2009.
The internals were likewise a disaster: the Indirect Bidders, after constantly soaking up 10Y paper over for the past 2 years, simply fled, taking down just 54.3% of the final allottment, down from 73.6% last month. And with Directs likewise barely budging, and holding 7.9% of the final proceeds, it meant Primary Dealers had to step up big time and purchase a whopping 37.7%, after taking down a modest 21.9% on average in the past 6 month: the highest Dealer award since January 2015.
In short: we called it dreadful, Stone McCarthy used “atrocious”, and indeed this auction marked a stunning reversal in demand for 10 Y paper. In fact, if demand for paper continues to evaporate at this rate, the US Treasury may have another problem on its hands: getting the Fed to start monetizing paper as soon as possible, i.e., QE4.
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