Strongest 2-Year Treasury Auction of 2012 Emphasizes Caution Toward Risk

If you wonder what a 200 point drop in the DJIA does to a Treasury auction, let’s just say that demand goes through the roof. We would normally not care about a 2-year Treasury Note auction but the results of this auction are nothing short of stellar. Just keep in mind that a stellar Treasury auction like this is bad news for stocks and other risk assets.

The auction for the two-year Treasury went off at 0.295% for a $35 billion auction. Direct bidders were over 38% and indirect bidders were 33.5% of the offering.

Here is what really stood out though… the bid-to-cover was 4.02. That was the highest since last November, but this is truly amazing and it does not bode well for equities on a day when the DJIA is down 200 points. We have given a “D” grade for this corporate earnings season, and now it looks like the DJIA has already peaked in 2012.

We are not alone in noting the stellar Treasury auction. CNBC’s Rick Santelli gave this a “A+” rating.

Again, a super strong Treasury auction that yields a piddly 0.295% is not a good indicator of the investing public’s risk appetite. This is called a flight to safety.

JON C. OGG