MacKenzie: Treasury buyers buying direct

"...That could make bond sales more volatile and potentially more expensive for the US Treasury as the debt is issued at higher yields. "The high direct bid is creating uncertainty on the part of dealers and that could lead to more volatile auctions and trading as dealers become more cautious about providing aggressive prices," says Mike Pond, Treasury strategist at Barclays Capital..."

"...The growing size and number of auctions in the past year has encouraged more investors to wait for debt sales, rather than accumulate Treasury holdings over time.

For some time, liquidity has been better around auctions, than the secondary market, say investors and dealers.

"Auctions can be viewed as liquidity events," says Tony Crescenzi, portfolio manager at Pimco. "They are a time when investors can buy a large amount of Treasuries without causing a big change in prices."

If this manifests itself as a growing direct bid, it could mean a less efficient bond market for investors and ultimately the taxpayer as dealers adjust to a new auction dynamic.

"To the extent that the US Treasury likes a stable government bond market, this could mitigate that objective and over time become more costly for taxpayers," says Mr Pond..."