Unlike recent fireworks in the 2Y repo market which, pushed the note super special as traders scrambled to obtain physical cash against which they could deliver their shorts, and which led to an absolute blockbuster 2Y auction if for all the wrong reasons (as traders rush to cover their shorts into the auction) there was no such repeat action into today’s $56 billion sale of 3Y paper, and as a result today’s auction represented a far more accurate representation of demand on the short-end.
Here’s what we got: the 3Y auction priced at a high yield of 0.75%, the highest since Feb 2020, more than 10bps above the 0.635% last month and a 1 basis point tail, the biggest since April 2020.
The Bid to Cover was also disappointing, sliding from 2.356 last month to just 2.326, the lowest since April and well below the 2.441 six-auction average.
The internals were slightly better, with Indirects taking down 57.6%, well above last month’s 44.2%, and the highest since Dec 2017, while Directs dropped to 18.04%, the lowest since April. The most remarkable stat, however, was that Dealers ended up taking just 24.3%, the second lowest on record.
Overall, this was a mixed, confusing auction, with disappointing top-line demand and a big tail as yields rose to the highest since Feb 2020, offset by a surge in foreign demand and a slump in Dealer awards. That said, hardly a bad auction and one which sets us up for a solid 10Y auction tomrrow in this week’s holiday-abbreviated schedule.
