Today’s 10Y Auction was a case study in opposites.
On one hand, the demand for today’s refunding 10Y auction, which was upsized to $27 billion, was stellar, with the high yield of 3.209% stopping 1.2bps through the When Issued, the biggest delta since March 2007. The yield was also just fractionally below below last month’s 3.225%, which was already the highest yield since 2011.
But the big surprise was once again within the internals. First it was the impressive bid to cover, which printed at 2.54, above October’s 2.39 and on top of the 6 auction average of 2.39. But it was the buyside demand that was fascinating, with Indirect Bidders taking down 73.8% of the final allotment, a record for this tenor. Meanwhile, Dealers took down 25%, below last month’s 30.1%, and below the average 26.85%, however as we have noted over the past month, this was entirely the result of another collapse in the Direct bid, which tumbled from 5.4% to 1.2%, the lowest going back to 2011, and a continuation of the bizarre trend of unexpectedly low Direct takedowns which we first observed 2 weeks ago with the 2, 5, 7Y auctions, and which flowed through into this week’s 3Y auction.
Overall, a very strong auction which helped push yields slightly lower from session highs, with the only exception the persistently low Direct demand which so far has yet to find a credible explanation.