Mediocre, Tailing 7 Year Auction Following Yesterday's Short Squeeze
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.