The first of three auctions is behind us. As MG noted the direct bid was HUGE. While I do think its great that the likes of PIMCO and Vanguard are providing support for the short end of the yield curve, I think it is important to call attention to another observation:

WHERE ARE THE INDIRECT BIDDERS GOING????

In today's auction indirect bidders took 38% of the issuance. Compare that to an average of 58% over the past six auctions. Way below average.

In the latest 7 year note auction on December 30, indirect bidders took home 44% of the auction. Compare that to an average of 63% over the past six auctions. WELL BELOW AVERAGE!

In the latest 5 year note auction on December 29, indirect bidders took home 44% of the  issuance. Compare that to an average of 52% over the past six auctions.WELL BELOW AVERAGE!!

In the latest 2 year note auction on December 28, indirect bidders took home 34% of the auction. Compare that to  48% over the past six auctions. WELL BELOW AVERAGE!!!

This is a big divergence from the days of unwavering supportive buying from the indirect bidder category aka "FOREIGN CENTRAL BANKERS" (indirect bidders).Well since the elimination of the guaranteed bid occurred it doesnt totally imlpy foreign central bankers are losing interest...it just means those who do not submit bids directly with the TSY are not showing up.

Are overseas bidders losing interest in US debt? 

Looking past this evolving supply and demand dynamic in the rates market....MBS prices have held and even added to early gains. The FN 4.0 is currently +0-22 at 97-17 yielding 4.235% and the FN 4.5 is +0-18 at 100-18 yielding 4.452%. The secondary market current coupon is now 4.441%....

I bet you want to know if we are calling this rally a facemelter. I have an answer...

YES. It's a facemelter on the scoreboard, but I must ask: How many lenders have repriced for the better?

Not too many yet.  While the usual 'price leader' types have updated rate sheet rebate to account for the post-auction price improvements, the majority of mainstream lenders have yet to offer up  any added basis points. Kinda defeats the purpose of awarding a rally "FACEMELTING" status doesn't it?

You could still see a few reprices for the better trickle in heading into the close.