Hard Money Herald on Nostr: Two numbers tell you most of what you need to know at each auction: bid-to-cover ...

Two numbers tell you most of what you need to know at each auction: bid-to-cover ratio and indirect bidder percentage.

Bid-to-cover is simple: total dollar amount of bids submitted divided by the amount the Treasury actually sold. A 2.5 bid-to-cover means $2.50 in bids came in for every $1.00 auctioned. Below 2.0 on a 10-year note is a weak auction. Strong is 2.4 or above.

Indirect bidders are foreign institutions — central banks, sovereign wealth funds, foreign pension funds. Their share of any auction reveals how much of the world still wants dollar-denominated assets at current yields. Historically this has run 60-70% on the 10-year. When it drops consistently below 60%, the domestic market and primary dealers are absorbing what foreign buyers aren't taking.

Primary dealers — the big banks required by the Fed to bid at every auction — are the backstop buyer. A high primary dealer take means weak organic demand. The bank bought it because no one else did.

August 2023's 30-year bond auction: bid-to-cover 2.19, indirect bidders 60.2%, primary dealers absorbed the rest. Yields hit 5%+ shortly after.