Well, if Trump really wants to blow out yields, he got a head start two months before he was even sworn in when moments ago the market threw up all over today’s $23 billion in 10-Year paper, the first benchmark auction to price above 2% since January, and not only that but do so with one of the biggest “tails” on record, pricing at 2.02%, 1.6bps wide of the When Issued 2.004%. The internals were even more, ahem, deplorable, with the Bid to Cover tumbling from 2.53 in October to 2.22, the lowest since March 2009, as Indirects plunged from 62.7% to only 52.5%, the lowest since January 2015, and with Directs taking down just 8.3%, Dealers were stuck with 39.2% of the auction.
Overall, this was about as ugly an auction as we have seen in years, and if this is indicative of how the market will treat the Trump administration, we may find ourselves in an entirely new regime: one where the bond vigilantes take on not the Fed, but the president. Where have we seen that? Oh yes, in Italy in 2011. That particular episode resulted in the ouster of Berlusconi.
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