We Have A Tantrum: 30 Year Treasury Auction Is Catastrophic
If the ugliest auction so far in 2021 was the disastrous 7Y sale back in February, which sparked a mini market meltdown in both bonds and stocks, then the just concluded sale of $25BN in 30Y paper was almost just as terrible. It was, in a word, catastrophic and since it is at the very end of the curve, one could almost argue it was even worse than the infamous 7Y auction.
Stopping at a high yield of 1.940%, the auction was slightly below last month’s 2.049%, but it was supposed to be far better, because while the When Issued traded at 1.888% the auction tailed by 5.2bps, which was the biggest tail on record for the 30Y tenor!
The bid to cover of 2.202 was far below last month’s 2.360 and below the six auction-average of 2.292. But it was the internals that were ugliest of all, with Indirects taking down just 59.0%, a collapse from last month’s 70.55% and far bleow the recent average of 64.3%. One has to go back to November 2019 to find a lower Indirect takedown. And with Directs also sliding to just 15.8%, the lowest since October 2020, Dealers were left holding on to 25.23%, the most since August 2020.
The record tail on a day that already saw the curve sell aggressively, sparked broad based revulsion, and moments after the results of the catastrophic 30Y auction were revealed, the curve spiked, with the long-end surging by 13.5bps, and the 10Y rising as high as 1.58% before recovering some losses.
And just in case the Fed is still unclear what is going on, this is the market – nearly a year before the Fed has to hike rates – tantruming and making it clear that it will not buy paper anywhere close to current levels if the Fed indeed abandons its QE commitment and subsequently hikes rates. Brace for far, far uglier auctions in the coming months from a market that is now fully habituated to getting everything it wants from the Fed. And yes, it will get another QE, it just has to wait a bit until stocks drops 10% or so before Powell throws in the towel.