The last time the yield on a 2-Year TSY auction was as high as it was today – 1.922% to be specific, tailing the When Issued 1.899% by 0.3bps – was just a few days after Lehman Brothers failed, with one difference: back then it was sliding, while now the rate on 2Y paper is surging, up from just 1.21% at the start of the year, and up from 1.765% just last month thanks to the latest Fed rate hike.
The Bid to Cover was only 2.515, a steep drop from last month’s 2.725% and well below the 2.88 6-auction average; it was the lowst BTC since last December’s 2.436%.
The internals were just as ugly, with the Indirect takedown sliding to 39.97% – the first sub-40% award since last December, and far below the 49.2% 6MMA. Directs were awarded 14.5%, below the 17% in November and 16.3% 6 month average, leaving Dealers with the bulk of the work, and award, at 45.5%, the highest since the 58% dealers took down in December of 2016, and far above both last month’s auction (41.2%) and the 6 month average (34.5%).
And yet, while today’s 2Y auction was just as ugly as the 3Month Bill auction earlier, it was so for different reasons, chief of which were year end window dressing as well as concerns about rising rates in the coming year. Overall, however, should 2018 buyside demand remain as lousy as it was in today’s various Bill and Note auctions, the Fed may soon have no choice but to return to the market and monetize some more debt.