Treasury Sells 2Y Paper In Poor, Tailing Auction At Highest Yield Since 2008

With today's On The Run 2Y Tsy trading very special in repo, down as much as -1.75% due to the ongoing year-end shortage of collateral across the curve, and which was the most-shorted since the summer...

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... we would have expected at least some strength in today's 2Y auction of Cusip U99, with a cash rate of 1.25%. Alas, the auction was jsut short of a disaster.

First, the high yield tailed by 0.5 bps, printing at 1.28%, above the 1.275% When Issued, the biggest tail since August. Then, the Bid to Cover of 2.436 was the lowest going back all the way to December 2008, and well below the 6MMA of 2.66.

The internals were likewise ugly, with Indirects ending up with just 32.7% of the takedown, the lwoest since August, and below the 35.4% 6MMA; Direcst also slide to just 9.3%, the poorest demand among the group since January 2015. Which meant that Dealers were stuck holding well more than half, or 58% of the auction, the highest allottment for the group since July 2014.

Overall, a very poor auction, and one which flies in the face of our Friday report that foreign central bankers are once again buying up US paper. Perhaps, unlike in recent history, they have focused their purchases on the secondary market while ignoring the primary. We won't know for sure until we see demand for 7, 10 and 30Y paper later this week and next.