Nearly a Year After Treasury Change, Do We Trust Indirect Bidder Numbers Yet?
First of all, we never trust any Treasury numbers but let's just pretend for the sake of this piece that we do.
In June of last year, Treasury changed the way it adds up indirect bidders somehow (vaguely) and threw off the indirect bidder indicator that generally identified the level of foreign demand in Treasurys. Of course, they announced the change so it's not like they tried to pretend they weren't doing it.
FT Alphaville made sense of it way back then:
Under the old system the award to the dealers was larger as the customer bid was included in the dealers bid. In that way the total to dealers was misleading as it made it look as though dealers were buying more bonds than they truly were. This gave an unfair advantage to the dealer who submitted the investor bid.
In short, foreign or indirect bidders will no longer be allowed to place bids clandestinely via direct dealer bids. This in the first instance may boost the number of publicised indirect bids, making demand from foreign central banks appear stronger in the short run than it was before.
And sure enough, it did. But sure enough, it was definitely a short run. By August, indirect bidders accounted for 33% of a 2y offering, whereas they gobbled up 69% the year previous. Deutsche Bank said the change may have inflated indirect bids by 15 - 20%, making this look far more pathetic than it would have under the old rule.
Ooops. Guess that little trick didn't work.
Zero Hedge on indirect bid action as of April 2010:
The just completed 3 Month Bill and 6 Month Bill auctions were interesting: the BTC on the 3 month came in at 4.69, a multi year high, and well above the 2010 average of 4.27%. Also the high rate has started leaking higher again, coming at 0.15%, compared to last week's 0.145%. Primary Dealers made sure there was no hiccup and they would be able to take down as much of the $24 billion auction as possible just so they can immediately turn around and repo the money, thus buying even more Whirlpool in large blocks, spooking the HFT algos in [sic] believing the stock is the next Google. After all - can't have a down Monday. It is verboten. Curiously the Direct take down surged to 19.2%, and almost surpassed the Indirect Take Down of 20.9%. The Direct (cough Bernanke cough) Bidders just refuse to go away. The 2009-2010 average on Directs is 7.81%, while that over the past 4 auctions is exactly double that 15.66%. Primary Dealers have taken down $51 billion of all 3 Month Bills so far in 2010.
I applaud ZH for making such broad assumptions regarding our stock and bond markets. You can't be both sides of the curve forever, that's all I'm saying.
So do indirect bidders mean anything? What did I tell you about trusting any Treasury numbers at all?