With the Fed continuing to hike rates, it should come as no surprise that today’s 2Y auction printed at a high yield of 1.348%, the highest stop out since October 2008. And perhaps because the yield was so high, it invited significant buyside demand, mostly from foreign central banks, with the auction stopping through the When Issued of 1.354% by 0.6 bps, the same as last month, and demonstrating surprising demand for the short end of the curve.

Confirming the strong demand was the jump in the Bid to Cover from 2.904 in May to 3.031%, the highest since November 2015, as a result of $82.0bn in total bids for $29.2bn in notes sold vs six previous auction average of $74.2b in bids for $29.1b in notes sold.

Additionally the internals were just as strong, with the Indirect Bid of 56.62% well above the 6 month average of 50.2% if slightly less than last month’s 57.15%. However, with the surge in Direct Bids to 18.35%, it meant the Primary Dealer takedown of 25.04% was the second lowest on record.

Overall, this was a very strong auction, one which continued to foil the traditional narrative that in a time of rising rates demand for the short end should see some weakness, although one possible explanation comes from Bloomberg which notes that the auction was expected to benefit from short-covering demand and carry.