Heading into today's auction, there was speculation that as a result of the recent blow out in yields and pile up in shorts, which had sent the repo rate on 10Y as negative as -0.60%, indicating a substantial shortage of paper, there would be a powerful squeeze headed into the auction.

That failed to materialize moments ago when the Treasury sold $24 BN in a 10Y reopening, which priced at a high yield of 1.739%, up from last month's 1.67%, which in turn was the lowest since Sept 2017, and tailed the When Issued 1.736% by 0.3bps. This was the 5th consecutive tailing 10Y auction in a row.

And yet, the internals were notably stronger than the headline tail would suggest, with the Bid to Cover jumping from 2.20 last month to 2.46, the highest since June, and above the 6 auction average of 2.40. Indirects were likewise strong, taking down 62.6%, up from 55.7% last month, and inline with the six auction average, while Directs ended up with 12.7% of the auction, just below last month's 13.6%, which left 24.7% for Dealers, the lowest since June.

Overall, this was a disappointing, if hardly poor, 10Y reopening, with solid internal demand if one ignores the relatively weak headline performance which suggests that an even bigger short base has to emerge before the auction breaks the recent trend of tailing and finally stops through.

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