On the surface, the just concluded auction of $24 billion in 3 Year paper was solid: printing at a high yield of 1.271% (22.93% allotted) while highest since April 2011, this priced 0.4 bps though the When Issued of 1.275%.
The good news ended there, because while the Direct Bidders took down 15.1% of the auction, or the highest since last November, it was the big drop in Indirects to 40.8% (down from 47.7%) and the lowest since November 2014, offset by a jump in Primary Dealers, that signalled not all is well.
But the worst was the plunge in the Bid to Cover, which after printing at a reasonable 3.14 a month ago, dropped to a paltry 2.82 in November, not only far below the TTM average of 3.27, but the lowest since October of 2009 when it hit 2.76 however in a rising trend.
In short: end demand far weaker, saved by Primary Dealers, as suddenly foreign central banks are far less interested in US paper just at a time when yields are rising and purchases of said paper that much more attractive.
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