While yesterday we at least had a mediocre 5Y auction to wash the bitter taste from the very ugly 2Y sale early in the day, today's sales of 7Y paper sticks out like a sore thumb. A very ugly sore thumb.
Pricing at a high yield of 4.399%, the stop was more than 50bps lower than last month's auction (which priced at 4.908% and was the highest on record) and was the lowest since August. However, what spooked markets is that the auction also tailed the When Issued 4.378% by a significant 2.1bps, the biggest since last November and one of the biggest tails on record.
The bid to cover was also ugly: at just 2.44, it was the lowest since April and clearly well below the six-auction average of 2.60.
The internals were even uglier: foreign buyers (i.e. Indirects) took down just 63.9%, down sharply from 70.6% in October and the lowest since March. And with Directs also dropping from 18.4% to 15.9% (below the recent average of 17.2%), Dealers - who are mandated to buy no matter what - ended up with 20.3% of the auction, almost double from last month's 11.0% and the highest since last November.
Overall, this was a piss poor auction, one which was ugly on all verticals, and a start reminder to the market that even if the US enters a soft landing - as today's dovish sentiment clearly hopes - there is still the issue of trillions and trillions in debt issuance on deck that will have a big problem getting funded at current levels.
That's why yields promptly spiked after the ugly auction...
... but the real move was in the VIX which kneejerked higher by some 1.5 vols before promptly reversing the move as someone got stopped out brutally and clinically.
While yesterday we at least had a mediocre 5Y auction to wash the bitter taste from the very ugly 2Y sale early in the day, today’s sales of 7Y paper sticks out like a sore thumb. A very ugly sore thumb.
Pricing at a high yield of 4.399%, the stop was more than 50bps lower than last month’s auction (which priced at 4.908% and was the highest on record) and was the lowest since August. However, what spooked markets is that the auction also tailed the When Issued 4.378% by a significant 2.1bps, the biggest since last November and one of the biggest tails on record.
The bid to cover was also ugly: at just 2.44, it was the lowest since April and clearly well below the six-auction average of 2.60.
The internals were even uglier: foreign buyers (i.e. Indirects) took down just 63.9%, down sharply from 70.6% in October and the lowest since March. And with Directs also dropping from 18.4% to 15.9% (below the recent average of 17.2%), Dealers – who are mandated to buy no matter what – ended up with 20.3% of the auction, almost double from last month’s 11.0% and the highest since last November.
Overall, this was a piss poor auction, one which was ugly on all verticals, and a start reminder to the market that even if the US enters a soft landing – as today’s dovish sentiment clearly hopes – there is still the issue of trillions and trillions in debt issuance on deck that will have a big problem getting funded at current levels.
That’s why yields promptly spiked after the ugly auction…
… but the real move was in the VIX which kneejerked higher by some 1.5 vols before promptly reversing the move as someone got stopped out brutally and clinically.
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