We said that yesterday’s subpar auction was a harbinger that today’s benchmark sale of 10Y paper (in the form of the 9-Year 10-Month reopening of Cusip FF3). We were right, because moments ago the Treasury sold $32BN in 10Y notes in another very poor auction.

The high yield of 3.930% was not only 60bps higher than last month’s 3.33%, it was also just shy of the cycle high hit in June 2009, when the 10Y priced at 3.99%. Notably, the auction tailed then When Issued 3.914% by 1.6bps, an ugly result but it could have been worse: last month’s tail was 2.7bps, and amazingly, 7 of the past 8 auctions have tailed!

And while the Bid to Cover was sub-mediocre at best, at 2.34, below the 2.40 six-auction average, it was the internals that were truly ugly, because at 56.8%, Indirects were well below last month’s 62.3%, below the recent average of 66.1%, and was the lowest going back all the way to November 2020 in the aftermath of the presidential election. And with Directs taking down 23.5%, or the most since March 2014, that left Dealers holding on to 19.7%, or practically unchanged from last month’s 19.8%.

To summarize, an ugly, tailing auction although it probably could have been worse, and likely will be tomorrow during the sale of 30Y paper especially if the CPI print comes hotter than expected.