How does it make sense that the 5 year U.S. Bonds/T-Bills Fed Auction, was a miserable failure on Wednesday - YET on Thursday longer 7 Year U.S. Bonds Fed Auction was a Strong auction?
Lets look at that more closely......
First here is a link to the 5 year Auction Failure
article:
http://market-ticker.denninger.net/archives/1267-US-5yr-Bond-Auction-Effectively-FAILS.html
From article:
And here's the math:
1.923 BTC X 61.59% Primary Dealer bid = 1.18 BTC (PD), greater than 1.0. Or to put it a different way, but for the primary dealers the bid-to-cover was less than one, meaning that some of the issue would have been left on the table.
Thats a fail; but for the primary dealers the issue would not have subscribed.
Primary dealers are required to bid. That's the deal in exchange for their being named as "primary dealers." For this reason short of thermonuclear war you will never see an actual (BTC <>
Therefore, the question is this: Less the primary dealer "bid" (forced by agreement) was there sufficient interest to subscribe the issue, and the answer is NO.
Those who think this is "no big deal" need to have their head examined. In general any BTC under 2.0 indicates a serious problem, and the perverse nature of the primary dealer system is the reason.
The United States' Credit Card (issued by China and Japan) is being slowly cut off. That the stock market "recovered" after this ridiculously bad auction (bow-wow is the best way to describe it) speaks to the vacuum between the ears of both the cheerleaders in the mainstream media and those in the equity markets.
There is only one other time in recent memory that we've had a bond market auction fail like this. You might want to go have a look at your charts - with dates - for what followed shortly thereafter.
They're going to try to sell 7yrs tomorrow, and then the real fun begins with the quarterly refunding.
That ought to be a real riot.
So, now lets look at the article from yesterday's T-bill Auction:
link: http://www.forbes.com/feeds/afx/2009/07/30/afx6721827.html
Of course this information is coming from a controlled PTB news site
Information from article:
NEW YORK, July 30 (Reuters) - The U.S. Treasury sold $28 billion in seven-year debt on Thursday in an auction that attracted surprisingly strong demand, assuaging some fears over the cost of financing the massive U.S. budget deficit.
The seven-year sale is the final part of this week's record $115 billion in coupon securities being auctioned and sets the stage for next week's announcement by Treasury of its quarterly debt refunding.
Though the stellar seven-year auction creates a positive tone ahead of the refunding, anxieties created by unimpressive two- and five-year auctions this week will linger as long as the market sees a growing load of debt headed its way.
'This is going to be a week-to-week drill from now on until we get some auctions that just downright fail,' said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
'Not fail in the sense that the Treasury fails to sell everything but just that instead of one poor auction, they'll all be poor and we'll just see rates having to sky higher to get some interest.'
The Treasury is expected to announce the refunding of its maturing three-year, 10-year and 30-year debt on August 5, with new overall borrowing estimates for the third and fourth quarters on August 3.
Quarterly refundings are generally an opportunity for Treasury to set out future borrowing plans after input from dealers.
The process is meant to allow markets to prepare for offerings, see the government's needs and get signals about any maturity changes or other considerations.
NO TAIL TO TELL
At Thursday's auction, seven-year demand overall was above average, measured by the bid-to-cover ratio of 2.63. A gauge of foreign and institutional investor interest, the indirect bidder category, was stellar at more than 62 percent.
In another sign of strength in the auction, yields were below expectations, gauged by trading in the when-issued market.
In contrast, two- and five-year auction yields came in above market expectations, which is known as a 'tail.'
'It came out pretty good,' said Rudy Narvas, senior analyst at 4Cast Ltd in New York. 'The key thing here is that indirect bidders showed up for this auction after scaling back allocations in the two and five-year auctions.'
'Overall it was a pretty good operation. There seems to be a lot of appetite, given where yields are, for notes in the belly.'
The two-year sale was lackluster and the five-year auction went downright poorly before the seven-year marked a recovery.
Okay, now lets look at this a little closer.
If people/countries did not rush to purchase 2 year and 5 year bonds - BUT they were happy to purchase a 7 year bond?
Considering the shorter bonds/debt has been selling more than the longer debt - how is it a longer one sold better than a shorter one. Was it possibly because the Shorter bonds were up for auction BEFORE the longer one? Thus the Fed made sure to have companies/banks in line to purchase the 7 year yesterday - so it looked strong?
The fact the Fed has admitted they have purchased the U.S bonds themselves, it seems to me they may have just used other companies to do that once more.
The fact that the 7 year bond auction was strong, over the 2 and 5 year - does not pass the smell test to me.
What I would like to see is the list of WHO purchased the bonds - was in U.S. entities (Goldman Sachs, J.P Morgan etc) or was it countries?
Look a little closer - you will find China has been using their dollar reserves to buy energy and commodity companies throughout the world.
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