Stellar Demand, Record Low Dealers In Blockbuster 2Y Auction

Stellar Demand, Record Low Dealers In Blockbuster 2Y Auction

One month after a forgettable and mediocre 2Y auction, moments ago the Treasury sold $48 billion in 2y paper in what was a clearly stellar auction, surprisingly so despite the sharp drop in yields across the curve which meant no concessions for buyers. Yet even so, at a high yield of 2.585%, the auction stopped 1.1bps through the When Issued. That said, this was one of the highest 2Y auction yields going back to the financial crisis, and was just shy of prior cycle high of 2.88% hit in Oct 2018, just before the Fed was forced to end its tightening plans.

Every aspect of the auction was solid: the Bid to Cover rose to 2.739, well above last month’s 2.463 and the highest since January’s 2.811. Excluding that auction, one would have to go back all the way to August 2020 to find a higher bid to cover.

The internals were also solid, and while Indirects took down a healthy 65.96%, well above both last month’s 55.03% and the highest since January, It was the Directs that were impressive again taking down a solid 21.4% which meant that Dealers were left with just 12.6% of the final award, the lowest on record.

Overall, this was a stellar auction and while the rest of the curve did not need it, having seen yields collapse across the curve and especially the 10Y which was down 7bps at last check, the remarkably solid demand for 2Y paper is certainly suggesting that we may be approaching the “peak inflation” moment, and that 2.5% is roughly where the Fed will hike to before it is forced to start easing again.

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Tyler Durden
Tue, 04/26/2022 – 13:25

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