The Treasury has successfully auctioned $44 billion 2 year notes.

The bid to cover ratio, a measure of auction demand, was 3.00 bids submitted for every one accepted by the Treasury.  This is below the ten auction average of 3.10 and the five auction average of 3.23.

Bidding stopped out at a high yield of 1.00%. This is slightly above the 1pm "when issued" bid.

Primary Dealers, aka the street, took 50.8% of the issue.  This is well above the ten auction average of 43.4% of the total auction award and above the five auction average of 42.0%.This is a negative, we do not want the street taking down higher percentages of the auction because they will need to get rid of unexpected supply...and they will not do it at cost.

Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 13.7% of the issue. This is above the ten auction average of 9.45% but below the five auction average of 13.9% of total auction.

After several healthy 2 yr note take downs over the past 9 months, Indirect bidders were awarded a paltry 34.4% of the auction. This is well below both the five and ten auction averages of 47.1% and 44.1% respectively. Only the July 28, 2009 recorded a lower indirect award.

Plain and Simple: Direct bidders and Primary Dealers offset a big reduction in indirect demand. Given the big concession that had been priced into the 2 year note over the past three sessions, I was expecting to see a better turnout. It makes me nervous that Dealers had to step up and take down the majority of supply...we would rather have the debt in the hands of direct and indirect accounts instead of dealers who need to distribute now.

Here is a recap...

2-YEAR NOTES

YIELDS
    High        1.000 pct
    Median      0.960 pct
    Low         0.891 pct

PRICE/ACCEPTANCES
    Price                  100.000000
    Accepted at high        56.32 pct
    Bid-to-cover ratio           3.00

AMOUNTS TENDERED AND ACCEPTED (dollars)
    Total accepted                 44,000,140,900
    Total public bids tendered    132,127,108,900
    Competitive bids accepted      43,517,432,000
    Noncompetitive bids accepted      457,708,900
    Fed add-ons                     1,488,393,700
   
    Primary Dealer Tendered        92,660,000,000
    Primary Dealer Accepted        22,374,000,000
    Primary Dealer Hit Rate    24.1% of their bid
    Primary Dealer Award        50.9% of issuance
 
    Direct Bidder Tendered         16,129,000,000
    Direct Bidder Accepted          6,007,064,000
    Direct Bidder Hit Rate     37.2% of their bid 
    Direct Bidder Award         13.7% of issuance  
   
    Indirect Bidder Tendered       22,855,400,000
    Indirect Bidder Accepted       15,136,368,000
    Indirect Bidder Hit Rate   66.2% of their bid
    Indirect Bidder Award       34.4% of issuance
 
 
NOTE DETAILS
    Issued date    March 31, 2010
    Maturity date  March 31, 2012
    CUSIP number   912828MU1

The "rate sheet influential" FN 4.5 MBS coupons initially fell from 101-05 to 101-02...it wasn't long before prices moved back into the pre-auction range though. Trading flows are slow in the mortgage market too...its like everyone is waiting around for something to happen.

REPRICES FOR THE WORSE BETWEEN 100-30 and 100-28. REPRICES FOR THE BETTER AROUND 101-09.  Of course there is always the PriceLeader who has been known to recall rate sheets well in advance of other lenders. If you are sending a file to them and your float boat is nearing its destination, you might want to watch for a reprice around 101-00.

The S&P is up 0.23% to 1168. The Dow is 0.53% higher at 10,844, and the NASDAQ is +0.4% at 2404. In more relevant industry news, PMI Group, the mortgage insurance group is up 16.61% today after Freddie Mac approved them as a direct issuer of mortgage guaranty insurance. FRE's approval allows PMI Mortgage Assurance Co to write new mortgage insurance business in certain states if the main operating unit, PMI Mortgage Insurance Co , cannot do so  because of its inability to meet regulatory capital requirements. READ MORE
 
Regardless of gains in equities nothing seems to be moving money in the rates market at the moment. The 2s10s yield curve is unchanged at 270bps after the auction. In fact...yields are pretty much unchanged across the curve. Check it out...

This complacency makes me nervous.