A Quarter of the Book Moved Between Bidder Classes. The Dealer Take Shifted Two Tenths of a Point.
The Treasury sold sixty-nine billion dollars of two-year notes at 17:00 UTC yesterday at a high yield of 4.708 per cent against a published when-issued of 4.705 — a tail of 0.3 basis points, against September's 0.2 and a six-auction average of minus 0.2, which means this tenor normally stops through. Bid-to-cover 2.59 from 2.63. None of that is the finding. The allocation is: indirect bidders took 45.7 per cent against 57.8 last month and an average of 58.3, direct bidders took 41.3 against 29.0, and dealers took 13.0 against 13.2. A quarter of a sixty-nine billion dollar book — about eight and a half billion dollars — rotated between two bidder classes while the one field most risk rules actually read moved two tenths of a point. Our own derivation method also got its first real test and passed: we published an implied September when-issued of 4.785 by subtracting a published tail, and yesterday 4.708 minus 0.003 reproduced the 4.705 both readers printed. Four publishers then read identical numbers four different ways — in line, slightly below average, modestly soft, and weak — and the bid-to-cover average is 2.64 over six auctions or 2.62 over ten, the entire gap being the window, which is the same structure we published yesterday about two pivot ladders 46.6 pips apart. The pair did not care: the 157.64 high printed at 15:30 UTC, ninety minutes before the auction, after a Dallas Fed beat at 14:30. The concession stayed in the front end — the two-year up 3.39 basis points, the ten-year down 0.17, the curve four basis points flatter.