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Woeful 3 Year Auction: Tailing Yield, Plunging Bid To Cover, Sliding Indirects
One would imagine that in a market as skittish for risk as this one, that selling $24 billion in 3 Year paper would be if not as easy as pie, then as simple as last month’s issuance, when not a cloud was visible when the Treasury sold 3 Year paper. One would be wrong, because moments ago the US Treasury managed to sell precisely that amount in February 2019 paper, however at a notable concession to the When Issued, with the high yield of 0.844% tailing the When Issued by 0.7 bps, while the Bid to Cover of 2.742 was the lowest since July of 2009.
The internals were likewise ugly: while the Directs of 15% were modestly higher than the 11% TTM average, the Indirect takedown tumbled from 62.8% to 41.5% the lowest since November, while Dealers were left holding 43.5% of the final auction, far higher than last month’s near record low 27.8%, and suggesting the foreign central banks may have had their fill of short-term paper.
The question then is why was demand for the short-end so weak at a time when the Fed itself may be relenting and not only halting its rate hike, but proceeding with outright NIRP, something which would lead to major capital gains for anyone who bought into today’s auction. The answer may be revealed as soon as tomorrow during’s Yellen’s semi-annual congressional testimony.
Source: http://silveristhenew.com/2016/02/09/woeful-3-year-auction-tailing-yield-plunging-bid-to-cover-sliding-indirects/
