Not even the Fed pre-monetizing yesterday of today’s 30 Year reopening auction could do much to improve demand for today’s $13 billion sale in long-dated paper. Because if yesterday’s 10 Year auction was a testament to demand from Direct and Indirect buyers, today’s final auction of the week was anything but.
Moments ago the Treasury sold $13 billion in 30 year paper, in a 29 year, 11 month reopening, of the infamous 912810QZ4 Cusip, and which priced at a high yield of 3.248%, the highest yield since last March’s 3.381%, and more importantly 1.5 bps higher than the When Issued 3.233%. The internals explained why the demand in the primary market was just not there: Indirects got 42%, Dealer take down was 51.2%, which mean Direct bidders were allotted just 4.9% of the total. This was the lowest Direct allocation since September of 2009, and in stark contrast to yesterday’s surge in 10 Year Direct bidders. Finally, the Bid to Cover came at 2.43, the lowest since August of 2012.
Not unexpectedly, the bond market reaction was swift with a prompt sell off following the news, which however quickly normalized because the last thing the market needs is the realization that without the Fed backstopping the entire curve virtually in perpetuity, there would be absolutely no demand at these prices. Or much lower prices. Which is why after an initial jump in yields, the pricing promptly stabilized even as every Tom, Dick and Harry is urging retail to get out of bonds now. For some reason, retail just refuses to get the message and to put their P&L fate squarely into the hands of Bernanke’s indirect hands, because remember: the Fed is buying bonds, not stocks.