If yesterday’s 5Y auction was impressive, today’s sale of $35BN in 7Y paper was the mirror image: ugly; maybe not as ugly as that infamous Feb 2021 7Y, but still ugly.
With the When Issued trading just above 4%, or 4.016% to be precise, the auction stopped at a high yield of 4.027%, not only tailing the When Issued by 1.1bps, the first tail for the tenor since June ’22, but it was also the highest yield for a 7Y auction going back at least 13 years.
And while the stop was ugly, the bid to cover of 2.430 was far worse: slumping from last month’s 2.569, this was the lowest BTC going back all the way to April.
The internals, while not quite as bad, were at best mediocre: Indirects were awarded 63.17%, up from 62.5% last month, but well below the recent average of 68.97%. And with Directs taking down 22.7%, the second highest since March (only Sept’s 24.66% was higher), Dealers were left holding on to 14.11% of the auction, the most since June.
Overall, this was another ugly, tailing auction, and yet another indicator that the Fed will need to do something if it hopes to maintain the stability of the primary bond market into 2023 when supply soars and demand is set to slide.