That 4 Week Bill auctions continue to price at 0.000% (today for the third consecutive week) is no longer news: the Fed has made it abundantly clear that the moneyness of “high quality collateral” maturing soon and not so soon is sacrosanct, and will only fail if the Fed’s credibility goes. However, what is news is the sudden demand for 1 month paper. Recall what happened a week ago during the last such Bill auction: “the Bid to Cover in today’s auction just soared to 6.36x, higher than last week’s 5.66x, and the highest since December of 2011, when the scramble into short-term paper was a function of year end window dressing (made since unnecessary courtesy of the Fed’s Reverse Repo facility). So while algos are levitating stocks higher based on simple carry currency/VIX correlations, why the sudden real money scramble for the safety of near-term paper?”
Today, the ante was just upped once more, as the Bid to Cover rose yet again, from 6.4x to 6.6x. Logically, this print is now the latest and greatest highest Bid to Cover since December 2011, and the question remains: why the scramble for safety?
Explanations range from smaller total auction, to lack of confidence in the stock market which has suddenly lost its impetus to go diagonally higher, to the anticipation of the first FRN issuance on January 29, to substantial Bill paydowns due to the debt limit. It gets better when one looks at the secondary market and sees the negative yields these, and other comparably maturing bills are trading at.
Whatever the reason, curious kinks along the curve are once again developing, especially when one considers the beating the 5Y has experienced in recent days (PIMCO concerns), and the rapid move in the 5s30s as shown below by @not_jim_cramer.