After one ugly 2Y auction and one catastrophic 5Y sale on Monday, today the week's truncated auction schedule saw the last coupon issuance for the week when the Treasury sold $40BN in 7Y paper. And while the auction was not as bad as the infamous Feb 21 "failed" 7Y auction but it sure was ugly.
The high yield of 3.280% was just over 50bps higher compared to the 2.777% in the May auction. and was the highest since Feb 2010 when the auction printed at 3.37%. More importantly, the auction also tailed the When Issued 3.259% by 2.1bps, the biggest tail of 2022 (Dec 2021 was 2.3bps).
The bid to cover dropped from 2.690 to 2.481, the lowest since April, but was above the six-auction average of 2.41.
The internals were also ugly, if not dire, with Indirects sliding from 77.9% to 61.9%, the lowest since March and below the 64.9% recent average. And with Directs rising to 20.4%, the most since March, Dealers were left holding 17.7%, up from the record 6.4% in May.
Overall, an ugly auction, but not catastrophic and certainly stronger than yesterday's 5Y. That said, a few weeks of QT, a few more rate hikes and we won't be surprised if we have an actual failed belly-buster auction.