After yesterday's strong 2Year auction, there was some confusion how today's issue of $34 billion in 5 Year paper would transpire, especially after the previously reported "technical difficulties" which prevented the NY Fed from conducting today's MBS POMO - something that has not happened in years. Well, the results are in and the auction was an absolute blockbuster.
First, the high yield of 1.169% was not only the highest since May 2013, but a whopping 1.6 bps through the 1.185% When Issued. The bid to cover, at 2.44, was unchanged from the January auction and just shy of the 12 month average. However, it was once again the internals where just like yesterday, Indirect bidders, aka foreign central banks just couldn't get enough, and with a takedown of 67.3%, this was the second highest Indirect allotment on record, second only to last July's 67.5%. This also means that with Directs taking down 10%, Dealers were left with just 22.4%or the lowest on record.
So while China or other EMs may or may not be selling US paper in the open market, foreign official reserve managers still can't get enough of US paper, and are soaking up as much on the runs in the primary market as they can find. This also suggests that there continues to be a significant rotation out of risky, inflationary assets, and into deflation-protected paper, and also means that if one were to take away the corporate buyback bid, which according to Goldman is the only material source of buying left, then the S&P 500 would be far lower.