Mysterious Direct Bidding Strength Leads Traders To Suspect A Massive Hidden Treasury Buyer
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This week’s treasury auctions have seen massive buying strength from direct bids, which represent U.S. institutional investors.
Such has been the strength that traders suspect a single massive contrarian buyer could be at work, purposefully trying to conceal itself:
FT: Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.
The surprising demand for Treasury notes has come in the form of "direct bids", the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales.
Yesterday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005.
On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.
Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.
Whoever it is, they may have backed off from today’s auction, given that direct bids were only 5% of the total this time. Nevertheless, the auction appeared to do well regardless since the high yield (at 4.64%) came in lower than where similar treasuries traded ahead of the auction Check out today’s treasury auction results here >
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