Gruesome 2-Year Auction As Traders Start To Freak Out About Tighter Fed
With 2Y TSY yields rising to the highest level since March 2020 amid a broad move higher in the Treasury curve which sent 10Y yields briefly above 1.50% today amid growing concerns about the Fed’s tightening intentions, trader attention was naturally primed on today’s 2Y auction (the first of two with the 5Y later in the day) to see if the secondary market weakness would spread to auctions.
And it did: in an auction that can at best be described as gruesome, moments ago the US sold $60 billion in two year paper which priced at 0.31%, the highest yield since March 2020 (certainly above August’s 0.242%) and tailing the When Issued 0.302% by 0.8bps.
The Bid to Cover was shockingly bad, plunging from 2.649 in August to just 2.28 in September, the lowest since the days of the Lehman bankruptcy, or December 2008 and far below the six-auction average of 2.55.
The internals was just as ugly: Indirects plunged from 60.53% in August to just 45.32%, the lowest since April, and with Directs taking down 21.7% or in line with recent auctions, Dealers were left with a whopping 33%, the highest since December 2020.
Overall, this was a remarkably ugly auction and judging by the wholesale flight of buyside demand, suggests that concerns about the Fed’s tightening, and higher rates on the short end…
… will lead to a lot of pain in the coming months as the US seeks to fund its ever growing deficits.
Mon, 09/27/2021 – 11:43