Yields Slide After Solid 7Y Auction, First Stop Through Since October

After two lousy, record large coupon auctions in Monday’s two-for-one special, moments ago the Treasury issued a non-record $42BN in 7 Year paper (we saw far bigger 7Y auctions which hit a mindblowing $62BN during the covid crisis), in what was a solid auction to close the month.

The high yield of 4.327% was above last month’s 4.109% and on pa with November’s 4.399%. It also stopped through the 4.329% When Issued, a 0.2bps stop through which was the first since November, and followed three consecutive tails.

The bid to cover at 2.577 was flat vs last month’s 2.574 and right on top of the six-auction average of 2.56.

The internals were solid with Indirects awarded 69.6%, the highest since October and also above the recent average of 68.0%. And with Directs taking down 14.8%, modestly below the recent average of 17.6%, Dealers were left holding 15.60%, the highest since December and above the average of 14.4%.

Overall, this was a solid auction, and a welcome reversal from the two subpar coupon sales yesterday which helpd push the 10Y as high as 4.3% yesterday. Not surprisingly, 10Y yields dropped to 4.28% after the auction, 2bps lower thanks to the strong auction results.