When commenting on yesterday's dreary 5 Year auction and previewing today's last for the week issuance of $29 billion in 7 Year paper we said that "perhaps the reserve liquidators who showed such interest in the short-end of the curve, are a little too pregnant with paper in the belly: we will find out for sure tomorrow when the 7 Year auction prices. If, likewise, it is a poor showing, then one can slowly build a representation of where "Indirects" are over exposed in terms of inventory."
Moments ago we got the answer and not only was today's "belly of the curve" auction not a "poor showing" at all, it may have been the strongest auction on record: pricing at 1.759% this was stopped 2.2bps through the 1.781% When Issued, perhaps a record in terms of concession, or lack thereof.
The internals were likewise dramatic: not only was the Bid to Cover of 2.630 was far above the 2.49 average, but was the highest going back to November 2014.
But the strongest indicator was the Indirects which took down a whopping 69.4%, up from the paltry 47.1% a month ago, and also the highest on record. And since Directs were largely unchanged at 14.8% from a month ago, this meant that Dealers who ended up with 15.8% of the final allotment, had the lowest take down on record.
So with today's last for the week auction in the history books, we now that while the 5Year may not be the sweet spot for foreign investors, when it comes to offshore central banks and other official investors, they just can't get enough of 7 year paper, leading to even more confusion about just what and who it is that foreign reserve managers are buying and selling.