In a day bond yields moved sharply higher on expectations that China’s upcoming reopening will spark a powerful reflationary impulse across global markets, and which sent the 10Y up from the low 3.70% last week to 3.85% a little after 12pm ET today, moments ago the US sold $42BN in 2Y paper in an impressively strong auction, one which saw a surge in foreign demand and the biggest stop through since May 2016.
Starting at the top, the High Yield of 4.373% was a drop from last month’s 4.505%, and the first sequential yield decline since July 2022. More importantly, the yield stopped through the 4.390% When Issued by 1.7bps, the biggest stop through gap since March 2016, showing just how much pent up primary demand there was for today’s issuance (which is now trading about 60bps below where the Fed sees the terminal rate in 2023 as nobody believes the Fed any more).
The bid to cover of 2.713 was also remarkable, and was the highest since April’s 2.739. It was certainly well above the six-auction average of 2.553.
The internals were also very solid, with Indirects (foreign buyers) awarded 62.2%, above the recent average of 55.6% and the highest since May 2022. And with Directs taking down 18.7%, or slightly below the six-auction average of 22.5%, it left Dealers holding 19.1%, the lowest since July.
Overall, this was a very strong auction, one which clearly took advantage of the strong repricing wider across the curve…
… and which successfully halted the intraday rout that sent yields to session higher just before the 1pm auction.