There’s a lot of focus on Treasury supply right now, and that’s an understatement.

Last week’s trio of auction tails ostensibly served as a reminder that price-sensitive investors are… well, sensitive to price, and the combination of dovish Fedspeak and haven-seeking tied to headlines out of Israel limited the market’s capacity to smoothly absorb the supply.

Said differently, it’s hard to build a concession against a dovish cacophony and the beating of war drums, which left “the auction process itself” (as BMO’s always excellent US rates team put it) as the only accommodation mechanism. Hence the poor results. As noted here over the weekend, it’s rare to see an entire auction series tail.

“Auction data are noisy,” Goldman’s Praveen Korapaty remarked, commenting on last week’s eye-catching primary market (under)performance. By itself, auction data isn’t “a reliable indicator of end-user demand for duration,” he went on, before quickly noting that market participants would nevertheless be remiss not to consider the distinct possibility that “auction allotment data could reflect [a] shifting buyer base” for Treasurys. And that’s really the key issue right now.

The figure above shows the allotment to mutual funds, money market funds, hedge funds and money managers across auction maturities rising by 20ppt over the past five or so years, with at least half of the increase witnessed since 2022.

There are any number of explanations for that, something Korapaty readily conceded. “Some of this growth could reflect previously indirect bidders participating directly in auctions or perhaps intermediary capacity constraints relative to growing issuance,” he wrote.

Still, there’s a perceptible “shift in end-user demand.” By every account, that shift points to a growing role for price-sensitive investors which, in turn, could “imply greater volatility in both primary and secondary market performance,” as Goldman put it. Especially “if the economic outlook is uncertain.”