Pre-CPI Jitters Spawn Ugliest 10Y Auction In 6 Years

If Monday morning’s 3Y auction was superb, than the 10Y auction just 90 minutes later was a disaster with a capital D (minus).

Today’s 2nd coupon auction of the day, a $32BN reopening of 9-Year 11-Month cusip FV8 was one of the ugliest 10Y auctions in recent years: pricing at a high yield of 3.625%, the yield was indeed a drop from last month’s 4.14% (which was already ugly with a 3.4bps tail to the When Issued), but more importantly today’s auction shocked the market tailing the When Issued 3.5880% by 3.7bps, the biggest tail since 2016.

The bid to cover of 2.31 was not the worst ever, but it wasn’t that far off: up from 2.23 in October, it was only the 2nd worst going back to Sept 2020.

The internals were a little better, with Indirects taking down 59.4%, which while below the six-auction average of 62.7% was above the past two auctions which were the lowest since March 2021. And with Directs taking down 18.7%, up from 18.1% last month, and right on top of the six-auction average of 18.7, Dealers were left with 21.9%, down from 24.4% last month, but nowhere near the lowest on record (unlike the 3Y auction earlier today) as Feb of 2022 saw an all time low of 7.4%.

Overall, this was a very ugly auction, and even though it priced at the wides of the day, when the 10Y was trading at 3.58%, no surprise that the lack of demand and the huge tail sparked another round of sharp selling and pushed the 10Y briefly above 3.62%, a 10bps swing from session lows.