As has been noted all this week, starting with Monday's 3 Year auction which printed at the highest yield in 5 months, the $12 billion 30 Year Bond did not surprise, and at a yield of 3.381%, just inside of the When Issued 3.385%, it priced at the highest yield since August 2011, or just days after the US downgrade. The Bid To Cover was 2.70, on top of the TTM average of 2.68. Take downs were a carbon copy of February, coming at 14.7%, 29.0% and 56.3% for Directs, Indirect and, of course, Dealers. Does the yield have a ways to go? Oh yes - back in February 2011 the 30 Year priced at 4.75%, and then the slow steady decline commenced. What happens next? Will the US need another downgrade for yields to paradoxically slide? Or will the Fed truly leave the UST curve untouched by phasing out its market subsidization? Hardly: as a reminder, here is where we stand: $1 trillion in bond issuance in the next 10 months, and $100 billion in bond sales by China in December (with the latest TIC data pending). Forget stocks, and keep your eyes glued to the bond market. Things are starting to get interesting, especially for the Fed whose DV01 of $2Bn means that every basis point rise in yields means less P and more L.
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