After two consecutive mediocre auctions, today the US government concluded its near record weekly haul of Treasury issuance, selling $31 billion in 7 Year paper, which it sold at a yield of 3.074%, stopping through the When Issued 3.069%, up from 3.034% last month and the highest yield since April 2010.

Confirming the weak demand for the belly of the curve, the Bid to Cover declined again, and after September's 2.449 it dipped to 2.393, the lowest since March, and below the 6 auction average of 2.55.

But the most notable feature of this auction, as with the most recent 3Y and 5Y auctions, was that the boycott by Direct bidders is going on, with Directs taking down just 5.22% of the final allotment, far below the 6 auction average of 14.1%, and the lowest since February 2011. Offsetting the poor Direct bid was the rebound in Indirects, who took down 64.6% of the auction, above last month's 61.2% and better than the recent average of 63.0%. Dealers were left with 30.2% of the auction, more than the 25.3% in September and above the 22.9% average.

Overall, a mediocre auction, but the most pressing question is what has spooked Direct bidders - note, not foreign central banks but domestic accounts - from participating in Treasury auctions. So far an answer has not been proposed.