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Surprisingly Strong 2Y Auction Stops Through, Sees Most Directs Since 2019

Ahead of today’s sale of $60BN in 2 year notes, rates bulls said that the collateral shortage and the competition for short-term paper would lead to investors moving out of the curve resulting in higher demand for today’s auction, while worries about reduction in coupon sizes in the coming months would also underpin auction demand. On the other hand, bond bears said the auction was likely to tail due poor timing ahead of the FOMC decision on Wednesday may be overshadowed by factors like a rise in the delta variant, weakness in China’s U.S.-listed shares and strong seasonality for two-year offerings.

In the end, the bulls were right by 0.2bps, which is how much the just completed 2Y auction priced inside the 0.215% When Issued, stopping out at 0.213%, and some 3.6bps lower than the June 2Y auction.

The Bid to Cover dipped modestly but not materially from last month, sliding to 2.471 from 2.540 in June and below the 2.54 six-auction average.

On the other hand, the internals were slightly stronger compared to June, with Indirects taking down 52.8%, above 50.6% and on top of the 52.7% recent average. And with Directs taking down 21.3%, the highest since December 2019, Dealers were left holding 26.0%, well below both last month’s 30.9% and the recent average of 30.7%.

Overall a surprisingly strong auction which negated any concerns about an incremental hawkish surprise out of the Fed on Wednesday.

Tyler Durden
Mon, 07/26/2021 – 13:13
Source: Zero Hedge News

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