International Demand Lower in 2 Year Treasury Auction as Fresh Bond Supply Swamps Market

In another week of heavy supply, the 2-year $54 billion two-year notes auction kicked off this weeks’ auctions and saw dismal international demand of 57.4% versus a 12-month average of 62.9%. Domestic demand came in stronger than expectations 23.9% versus the 12-month average of 20.2% which helped the entire complex higher throughout the day with the front end overcoming the soft sale. The bid to cover was less than the 12-month average. The sale drew a high yield of 4.887%, the WI level at the time of the auction 4.876%, the tail was 1.1 basis points., while the bid-to-cover ratio of 2.54X versus 12-month average of 2.74X. The desk gave a C- rating to the auction.

The treasury’s heavy supply this week includes $54 billion of two-year notes, $73 billion a 6-month bills, and $55 billion of 5-year notes today. Tomorrow the treasury auctions off 7-year notes.

Auction Highlights

  • Duration: 2 Years
  • Amount:  $54 billion
  • High-yield 4.887%
  • WI level at the time of the auction 4.876%
  • The tail was 1.1 basis points.
  • Bid to cover 2.54X versus 12-month average of 2.74X
  • Directs 23.9% versus 12-month average of 20.2%
  • Indirects 57.4% versus 12-month average of 62.9%
  • Dealers 18.7% versus 12-month average of 14.9%

Auction grade: C-

Yields after the auction.

  • 2-yr: -8 bps to 4.87%
  • 3-yr: -9 bps to 4.58%
  • 5-yr: -8 bps to 4.41%
  • 10-yr: -8 bps to 4.39%
  • 30-yr: -7 bps to 4.53%

Yields Before the Auction.

  • 2-yr: -2 bps to 4.93%
  • 3-yr: -2 bps to 4.65%
  • 5-yr: -4 bps to 4.45%
  • 10-yr: -4 bps to 4.44%
  • 30-yr: -3 bps to 4.57%

Prior auction results:

  • High yield: 5.055%
  • Bid-to-cover: 2.64
  • Indirect bid: 62.0%
  • Direct bid: 20.3%

Average results of previous 12 auctions:

  • High yield: 4.548%
  • Bid-to-cover: 2.74
  • Indirect bid: 62.9%
  • Direct bid: 20.2%

Bond auctions week ahead:

This week will bring some new supply.

  • Monday: 13- and 26-week bills, $54 bln 2-yr Treasury note auction results at 11:30 ET; $55 bln 5-yr Treasury note auction results at 13:00 ET
  • Tuesday:  52-Week 42-day cash management bills, $39 bln 7-yr Treasury note auction results at 13:00 ET
  • Wednesday: 4- and 8-week bills; 17-week bills;
  • Thursday: 4- and 8-week bills

Live From the Pit

From The TradersCommunity US News Desk