Demand Surges Into 10 Year Treasury Auction As Shorts Squeezed Again

The short squeeze into 10Y auctions never fails.

As we noted first thing this morning, the 10Y was trading special in repo, which as we have shown repeatedly is usually the best indicator of a very strong auction (and profits for Element Capital, whose trading strategy is said to rely precisely on a repo squeeze into 1PM).

10Y -0.70% in repo. Element to book solid profits today

— zerohedge (@zerohedge) September 9, 2015

This is how the repo market looked this morning:

And sure enough, moments ago the Treasury confirmed just that when it reported blistering demand for the 10Y led to a 2.235% high yield, stopping through the When Issued 2.246% by a whopping 1.1 bps – your classical squeeze into the auction.

Not only that but the Bid to Cover of 2.70% was very impressive and made last month’s disappointing 2.40% outlier a thing of the past.

The internals were also strong with Directs taking down 13.8%, up from 5.8% and above the TTM average, Indirects taking 57.5% also above the 54.9% 12 month average, leaving just 28.7% to the Dealers: the lowest since May.

Click on picture to enlarge