Record Large 2Y Auction Prints At Record Low Yield As Bid To Cover Tumbles
Tue, 05/26/2020 – 13:17
Following a sharp drop in short-end rates in May, when fed funds futures traded negative for the first time ever sending 2Y yields plunging, it was a given that today’s 2Y Treasury auction would price with a record low yield, the only question was by how much. We got the answer moments ago when $44BN in 2Y paper priced at a yield of 0.178%, down from 0.229% in April, and below the previous record low of 0.222% hit in August 2011 when the US was downgraded by S&P. Still, there were some hiccups with the high yield tailing the When Issued 0.176% by 0.2bps.
There were more hiccups in the bid to cover, which tumbled from last month’s 3.102% to 2.683%, which however was still well above the six-auction average of 2.58.
The internals were less exciting, with Indirects taking down 53.1%, down from last month’s stellar 55.81%, and with Directs allotted 14.8%, it left 32.10% to Dealers, right on top of the recent historical average.
Overall, a strong auction despite a few minor blemishes which may be attributable to the rapidly increase in the 2Y auction which is now tied for all time high at $44BN…
… yet with the Fed increasingly likely to cut rates to negative at the next sign of trouble (even though it won’t admit it), the question is how long before the 0.176% yield touches 0.000% and turns negative.