Why *Only* That Specific One?

The only thing that stands out which might, could be able to explain such a drastic difference in a matter of days is if there had been some disturbance between those two auctions ultimately restricting dealer demand or perhaps capacities to engage in usual functions at typical levels.

February 24:

Fedwire, however, could [explain this] – starting with the absence of dealers on this particular day in question.

The interbank payment disruption itself wasn’t really that big of a deal. But, just like September 2019 repo, it exposed serious, unresolved cracks in the façade, reminding the global system that it is held together still today by a very fragile framework where, again like 2019, when something unanticipated happens the dealers ungracefully exit and leave liquidity to its own spotty devices.

Backed up by the previous day’s unsettled Fedwire transactions, dealers (somewhat) sat out the 7s and the rest is (short run) history.

It’s just not likely at all that reflation or better yet outright inflation fears had spiked the 7-year note auction – and only that Feb 25 note auction. Why just that one, and no others? The very debt sale which just so happened to come immediately after an interruption in the monetary plumbing (accidental or not doesn’t matter) almost certainly backing up processing therefore curtailing balance sheet formalities – like being assured of being able to bid at full capacity at the next day’s big 7-year note-fest.

Reflation is not, nor could it ever be, so obviously fickle targeted to disrupt only a solitary instance. Then there’s all the rest relating to the global marketplace which over the next few days transitioned itself out of reflation entirely (including, importantly, TIPS real yields!)

What we know for certain is that the 7-year auction on February 25 went very poorly, but that it was the only which has. Just two days before, the volatile 2s got issued without so much as a sniff or notice of trouble. Dealers aplenty. And all the auctions since have been absolutely unremarkable in every possible way.

There’s just no way to legitimately square the evidently intrusive events on February 25, and all the global chart changes which have accompanied it, with the idea that global bonds, Treasuries most of all, have been overtaken by the pure optimism thrown around casually. Inflation surely cometh – but only for the 7s on the 25th of February!

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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