In light of the recent surge in shorts across the curve, which as the table below shows has pushed repo rates deep into special territory, with the 2-Year going negative ahead of today’s auction…
… it may have been the squeeze going into today’s 1PM auction announcement that prevent an uglier result for the just concluded sale of $26 billion in 2 Year paper.
Pricing at 1.085%, a 0.1 basis point tail to the 1.084% When Issued, today’s 2Y auction yield was the highest since the 1.09% auction in December 2009. The high yield would have likely been even higher if there was no squeeze in repo.
The internals, however, were fractionally better, with the Bid to Cover rising from 2.53 in October to 2.732 in November, the highest since August. Direct Bidders took down 13.43% of the final allotment, while Indirects were responsible for 50.8% of the takedown, better than the 6 month average of 46.9%. As a result Dealers were left holding 35.8%.
Overall, an average auction, but certainly an improvement from the first two “deplorable” auction under Trump which priced two weeks ago at terms that left many wondering if the Bond Vigilantes were now truly stirring.