Treasury yields are surging across the complex with the long-end steepening notably. Today’s 10.5bps jump in 10Y yields is the biggest percentage shift since early November 2013… and a significant tail in the 7Y auction just made things worse.
The long-end is suffering most…
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But the selling is across the complex…
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It is unclear how much of today’s bond sell-off was a factor in the just concluded 7 Year Treasury offering, but what is clear is that unlike yesterday’s strong 5 Year issuance, today’s auction was disappointing, starting with the High Yield of 2.25%, the highest since April’s 2.32% and tailing the 2.24% When Issued by 1 bp. And while the Bid to Cover was a slight improvement from last month’s 2.435 rising to 2.581, it was the internals where we saw a flight of Direct bidders, who only took down 15.2% of the auction. This was the lowest allotment since July 2012. The offset: a pick up by Indirects from 40.6% to 47.4% while Dealers ended up with 37.4% of the auction.
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Regardless of the auction one thing is clear, the shorting of bonds today will continue until the squeeze, as has been the case for all of 2014, returns.
