Yesterday’s 2 Year auction was ugly, and while it stopped through the When Issued its internals were ugly. Moments ago the Treasury sold $34 billion in 5 Year paper (Cusip Q37), which was just as, if not uglier. The high yield printed at 1.335% (28.08% allotted at high), stopping 0.5 bps through the 1.330% When Issued.
The Bid to Cover, just like yesterday, slid again, dropping to 2.38, down from 2.44 in February, and below the 12 month trailing average of 2.45. The good news: the BTC collapse did not match yesterday tumble in bid-side demand, where the BIT dropped to a level last seen in December 2008.
And, just like yesterday, Indirect bidders took down just 53.9%, far below below the record 67.3% in February, and below the LTM average of 58.5%. Directs were left holding 7.2% while Dealers were allotted 38.9% of the paper, the highest since August 2015.
It is worth noting that there were mitigating circumstances: just like yesterday European buyers were off on holiday, so today the auction took place during Yellen’s critical Economic Club speech, when few were willing to take the risk with some major hawkish surprise coming out of Yellen’s mouth. Now that just the opposite has happened, we expect the auction of tomorrow’s 7Y auction to be far “smoother sailing” compared to the stormy issuance of 2 and 5 Year paper so far this week.