Stellar 2Y Auction Sees Near-Record Indirects And Near-Record High Yield

With the Fed rate hikes on pause – at least until next month – today’s 2Y auction was closely watched for clues whether demand would slump ahead of what consensus see as another 25 bps rate hike in a few weeks. It did not: in fact, today’s 2Y auction was one of the strongest in recent months.

The high yield of 4.670%, while well above last month’s 4.30%, stopped through the 4.678% When Issued, and failed to top the record high hit in February when the auction stopped at 4.673%.

The bid to cover of 2.860 was below last month’s 2.90, if well above the recent average of 2.71%.

The internals were also solid, with Indirects taking down 68.5%, which would have been the highest on record, with the exception of an odd, outlier print back in June 2009 when Indirects were awarded just fractionally more or 68.74%.

And with Directs taking down 18.2%, that meant Dealers were left holding 13.3%, which was just shy of an all time low.

Overall, this was a stellar 2Y auction, and while the sale may have benefited from a modest short squeeze, the 2Y tenor was not trading very special in repo, so much of the demand for the short-end today was likely organic.