One look at today’s repo market levels before today’s 3 Year auction would have suggested that just because 3 Year paper was trading special in repo, that we would be primed for another short squeeze.
However, that did not happen. Instead, and contrary to last month’s stellar 3 Year auction, moments ago the US Treasury reported that today’s auction printed at a high yield of 0.93%, tailing the When Issued 0.928% by 0.2 bps, and 5.5bps higher than last month’s 0.875%.
The internals were mediocre: the Bid to Cover slide from 2.933 last month to only 2.792, well below the 12 month average of 3.017. But the biggest surprise was the sharp dropoff in Indirect Bidders, aka foreign central banks and official buyers, who slid from 61.5% last month to only 48.1%, the lowest since March. And since Direct bidders took down 11.1%, or almost the same as last month, this was offset by a spike in the Dealer allocation, which rose from 28.3% to 40.8%, the highest since March.
Overall, a poor auction, one which has pushed the entire Treasury complex lower, and is surely going to leave a bad taste in everyone’s month ahead of the all important 10 Year auction tomorrow.
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