When discussing yesterday's stellar 10Y auction, we said that we expect today's sale of $19 billion in 30Y paper to show the same collapse in Direct bidder demand observed that has been observed for the past 2 weeks. Well, that's precisely what happened. However, it was much more than just that in what was a truly dismal auction.

Starting at the top, the yield on today's 30Y auction was 3.418%, the highest since April 2014, which tailed the When Issued 3.395% by 2.3bps, the biggest delta in years and a major surprise for the market which did not expect such a poor topline demand heading into today's auction. The bid to cover was also dreadful, printing at just 2.058, not only far below last month's 2.419% and the six auction average 2.36%, but also the lowest since February 2009.

Meanwhile, it was the internals where the big "surprise" was to be found once again, as the ongoing Direct bidder collapse emerged again, with Directs taking down just 2.9% of the auction, far below last month's 12.8%, and the lowest since Sept. 2009. The Treasury has yet to provide some argument or justification for the ongoing boycott by this aspect of the buyside. Offsetting the plunge in Directs was a relatively strong Indirect bid, if at 59.1% it was also the lowest since March 2018. Rounding off the demand were Dealers, who took down 38.1% of the auction, the highest since August 2015.

Overall, this was the ugliest 30Y auction in years - perhaps a function of growing concerns about America's double deficits and continued spending - and the response in the bond market was instant, with the 30Y yield jumping by 2bps in the secondary market and pushing the entire curve notably wider as shocked bond traders did a double take at today's results.