Posted by on July 27, 2017 5:12 pm
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Categories: Across the Curve Auction Auction theory Auctions Business models Economy High Yield Shop at Bid Short Interest US Federal Reserve

After two surprisingly strong auctions earlier in the week, when the Treasury sold both 2 and 5 Year paper to unexpectedly brisk demand ahead of the FOMC meeting, which bounced despite a record high short interest in 2Y futs, moments ago the last auction of the week closed when $28 billion in 7 Year paper was sold at a high yield of 2.126%, tailing the When Issued 2.122%, and the highest yield since 2.215% in March.

The internals were mediocre, with the bid-to-cover of 2.54 better than last month’s 2.461%, if right on top of the six auction average of 2.54%.  Indirect bidders took down 67.7%, also better than last month’s 67.4%  and above the 6MMA of 69.3%, as direct bidders were awarded 11.6%, more than the 9.4% taken down in June and the 6 auction average of 10.4%. Finally, Dealers were left with 20.6%, the lowest since April’s record low 8.8% and below the 6MMA 20.2%.

While the auction was not nearly as exciting as the last two, perhaps much of that has to do with the post-Fed rally observed yesterday, which forced short covering, mostly on the short end, but also broadly across the curve. And with less shorts to squeeze, the result was a rather mediocre auction.

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