Subpar, Tailing 30Y Auction Confirms Recent Bond Rally Is All Technicals

Ahead of today’s last-for-the-week coupon auction, we asked if following yesterday’s unexpectedly ugly 10Y reopening which tailed more than 3bps following a 12bps intraday rally, we would see another chunky tail thanks to today’s repeat rally.

another chunky auction tail after today’s rally?

— zerohedge (@zerohedge) April 13, 2022

Then, just a few moments later we got the answer, and while not quite as “chunky” as yesterday’s 10Y, we did get another tail in the 30Y: with the auction stopping at a high yield of 2.815%, the highest since May 2019 and 44bps higher than last month, this was a 0.9bps tail vs the 2.806% When Issued. And while the auction was certainly uglier compared to last month’s 2.4bps stop through, it was nowhere near as bad as February’s disaster when as a reminder the 30Y tailed by a record 10.6bps during the initial market shock following the Fed’s furious repricing of rate hike expectations.

The bid to cover of 2.30 was below average, and sliding from 2.458 last month it was also below the six-auction average of 2.32%.

The internals were similarly subpar, with Indirects taking down 65.2%, the lowest since January, well below the 71.5% in March and also below the 65.8% recent average. And with Directs taking down a relatively high 18.9%, the most since August, meant that Dealers – who can no longer flip the paper back to the Fed with QE over for a few months – ended up with 15.9% of the auction, the most since January.

Overall, another subpar auction although like yesterday’s 10Y, hardly catastrophic, and the weak metrics were the direct result of the sharp yield drop across the curve which however left a bad taste in bidders’ mouths who then tailed the auction…

… and as Bloomberg correctly puts it, the mediocre demand in this week’s Treasury sales suggests that “the bond rally observed over the past few days is probably a lot more about positioning and risk management than it is a strong recovery in buy-and-hold investor demand.”