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Record Weekly Treasury Issuance Concludes With A Poor 7 Year Auction

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The week of record Treasury issuance concluded today with a 2Y FRN auction earlier, and a just concluded sale of $29 billion in 7Y paper, the week's last coupon auction. Which, due to its position at the belly of the curve, a sweetspot for duration vs yield, traditionally is the best barometer of market interest for US paper. Which may be a problem because the just concluded auction was the worst of them all.

Stopping at a yield of 2.720%, below last month's 2.839%, the auction tailed the When Issued 2.701% by 1.9bps, the biggest tail since Feb 2016. Perhaps partially explaining the weak stopout is that the auction took place after a significant rally lowered 7Y yields from a high of 2.78% yesterday.


The internals were also poor: the Indirects were awarded just 55.85%, the lowest since February 2016, and 10 points below the 6 month average of 65.6%.


Directs also pulled back and took down just 12.1% of the auction, below both the February 15.6% and the 6 month average of 14.2%. This left dealers holding 32.1% of the auction, the highest since February 2016.

Overall, this was a very poor auction, with weak buyside demand, big concessions, a foreign buyers' strike, and certainly a sour taste to close a week of record Treasury issuance.


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