With none of the curve trading special in repo, we did not expect a short squeeze into today’s 2 Year auction, but even so with a yield of 0.745% – printing right on top of the 0.745% When Issued – it was still the lowest yield for an auction of this maturity since September 2015 when the Fed’s first rate hike fake out took place, and 18bps below the May auction when the auction closed at a high yield of 0.92%.
This was to be expected following the Fed’s latest dovish relent which pushed the short-end of the curve sharply lower.
The internals were less impressive, with the Bid to Cover sliding from 3.00 a month ago to 2.718, the lowest since April, and below the 6month average of 2.80%. Indirect Bidders took down 47.36% of the final allottment, with Direct taking only 9.92%, or the least since January 2015, which meant Dealer would end up holding 42.7%, the most since November.
Overall, neither a mediocre auction, which came roughly where it was expected, and will be nothing to write home about ahead of this week’s upcoming 5 and 7 Year auctions.
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