If the 3Y TSY auction which priced earlier was stellar, outperforming historical averages on every metric, then the just concluded 9-year, 11-month reopening of CUSIP 3F5 was mediocre at best. Stopping at a high yield of 2.384%, this was a 0.5bps tail to the 2.379% When Issued, and 0.7bps higher than November's 10Y high yield of 2.314%. This was the highest yield since May's 2.40%, and also the 6th straight 10Y reopening to tail. 

The internals were unimpressive too, with the bid-to-cover of 2.37 sliding from last month's 2.48, and below the 6-month auction average of 2.42. There were $47.4bn in total bids for$20.0b in notes sold vs $59.7b in bids for $25.8b in notes sold at last auction.

The buy side was modest, with direct bidders awarded 8.4% vs last auction 9% and 6.50% 6MMA, while interest by Indirect bidders also slumped, down to 57.2% vs last auction 68.0%. Dealers were left holding 34.4%, the highest since September, and nearly 50% more than last auction's 23%.

But was is most surprising is that as we previously noted last week, despite the recent record specialness in repo for 10Y paper, the auction tailed and did not see a notable short squeeze contrary to traditional squeezes we have seen every time the 10Y approaches special in the repo market.

The market's reaction to the ugly auction was predictable: the yield moved higher immediately, rising from 2.37% to 2.38% in a handful of ticks as traders were surprised to see such a disappointing auction despite the record short interest going in.