Today’s 2-year note auction was nothing short of spectacular.
The auction stopped modestly thorough the 1:00 p.m. When Issued (2.067%), printing at 2.066%, the first 2%+ yield since September 2008 and the highest in 10 year, but what immediately jumped out was the largest bid/cover in more than two years: the BTC soared from 2.515 in December to 3.22, a level not seen since September 2015, and well above the 6 month average of 2.80.
The buyside takedown figures were also tremendous – possibly assisted by the covering of a significant short base – ahead of what is expected to be an increase in front-end auction sizes beginning next month.
In total, the buyside bid was led by an enormous $25.285 billion Indirect bid. That is the largest Indirect bid since June 2010. The average Indirect bid over both the past year and the past six months was $15.7 billion. The hit ratio was unusually light, which limited the takedown, but Indirect bidders still walked away with 58.3% of the issue, far above December’s 40.0%. It was also the largest takedown since July of last year, and it compares to an average of 50.3% over the past year and 46.4% over the past six months.
The Direct bid was a little closer to average. The $5.985 billion size of the bid was in line with the average, and the hit ratio was slightly above average. Altogether, it was enough for a 15.9% takedown, which compares to an average Direct bidder takedown of 14.7% over the past year, but a slightly larger average of 15.7% over just the past six months.
The $52.049 billion size of the Dealer bid was good. It wasn’t exceptional, but it was a little above the $51.4 billion average of the past year and the $50.7 billion average of the past six months. The strong buyside held down the Dealer hit ratio though, leaving Dealers with only 25.8% of the auction today, far below last month’s 45.5%, and one of the lowest on record. As the mirror of the buyside, that was the smallest Dealer takedown since last July, and the fourth smallest on record.
Overall a tremendous auction and one which suggests that foreign buyers have noticed that the yield on 2Y paper is now well above the dividend yield on the S&P, as sooner or later the great rotation will shift, only in the other direction: from stocks to bonds.