Surprisingly Strong 7Y Auction Sees Surge In Foreign Demand

After Monday's ugly 2Y and Wednesday's abysmal 5Y auction, moments ago the Treasury sold $32 billion - a record amount for this tenor - in 7 Year paper in a surprisingly strong sale, which stopped 0.8bps through the When Issued, the biggest stop through going back to January's 1.2bps, a major difference to yesterday's whopping 2bps+ tail, which came at a time when stocks were soaring and TSYs were being dumped by rebalancing pension funds and other investors. The top-line strength was surprising as this was the lowest stop since the 2.565% in January's 7Y auction, and sharply below November's 2.974%.

Like yesterday, the auction saw a drop in the Bid to Cover, although far less than the 5Y's near-record 1-month drop, with today's 7Y pricing at a bid to cover of 2.459, down from 2.551 in November and below the 2.51 6 auction average.

The internals is where the auction was strongest, with Indirects taking down 67.4%, the highest since January, and well above the past 6 auction average of 61.3%. Directs dropped from last month's near-record 27.0%, sliding to 14.6%, leaving Dealers holding 18.0% of the auction, above last month's 16.3%, but below the recent average of 23.5%.

Overall, a surprisingly solid auction which was surely helped by the rout in the market, and a welcome reversal from two abysmal auctions which had sparked concerns that we may be seeing the start of a mini-rebellion in the US Treasury market.

(Click on image to enlarge)

And with that, the debt issuance calendar for 2018 is now closed, and bond traders can look toward calendar 2019 when well over $1 trillion in bond issuance will have to be digested.

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