While yesterday we at least had a mediocre 5Y auction to wash the bitter taste from the very ugly 2Y sale early in the day, today's sales of 7Y paper sticks out like a sore thumb. A very ugly sore thumb.

Pricing at a high yield of 4.399%, the stop was more than 50bps lower than last month's auction (which priced at 4.908% and was the highest on record) and was the lowest since August. However, what spooked markets is that the auction also tailed the When Issued 4.378% by a significant 2.1bps, the biggest since last November and one of the biggest tails on record.

The bid to cover was also ugly: at just 2.44, it was the lowest since April and clearly well below the six-auction average of 2.60.

The internals were even uglier: foreign buyers (i.e. Indirects) took down just 63.9%, down sharply from 70.6% in October and the lowest since March. And with Directs also dropping from 18.4% to 15.9% (below the recent average of 17.2%), Dealers - who are mandated to buy no matter what - ended up with 20.3% of the auction, almost double from last month's 11.0% and the highest since last November.

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Overall, this was a piss poor auction, one which was ugly on all verticals, and a stark reminder to the market that even if the US enters a soft landing - as today's dovish sentiment clearly hopes - there is still the issue of trillions and trillions in debt issuance on deck that will have a big problem getting funded at current levels.

That's why yields promptly spiked after the ugly auction...

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... but the real move was in the VIX which kneejerked higher by some 1.5 vols before promptly reversing the move as someone got stopped out brutally and clinically.

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