Softer Demand at 7-year Treasury Bond Auction Completes Week’s Offerings with Higher Yields

U.S. Treasuries completed this week’s note auctions and are hanging just below rebound highs. Shorter tenors outperformed early. The market showed no significant reaction to the $37 bln 7-yr note sale, despite the offering seeing weaker demand that yesterday’s sale of 5-yr notes and Tuesday’s 2-yr note auction. The sale drew a high yield of 4.673% (When-Issued: 4.670%), with a tail of three basis points while the bid-to-cover ratio (2.47x) and indirect takedown (65.5%) were below average. The desk gave a C- rating for the auction. The market has absorbed today’s new supply without issues. Equities rallied with the S&P 500 and Nasdaq higher.

  • The domestic demand was above its 12-month average indicative of stronger domestic demand
  • International demand (indirect) was below the 12-month average.
  • Primary dealers were left with 14.6% versus normal around 13.0%
  • The desk gave a C- rating on the auction.

Auction Highlights

  • Duration: 7 Years
  • Amount: $36 billion
  • High-yield 4.673%
  • WI level at the time of the auction 4.670%
  • Tail 3 basis points vs six-month average of +0.9 basis points
  • Bid to cover 2.47X v 12-month average of 2.51X
  • Directs 19.9% v 12-month average of 18.8%
  • Indirect 65.5% v 12-month average of over 68.2%
  • Dealers 14.6% v 12-month average of 13.0%

Auction grade: C-

Yields after the auction.

  • 2-yr: -6 bps to 5.08%
  • 3-yr: -7 bps to 4.83%
  • 5-yr: -6 bps to 4.64%
  • 10-yr: -3 bps to 4.60%
  • 30-yr: UNCH at 4.73%

Yields before the auction.

  • 2-yr: -4 bps to 5.10%
  • 3-yr: -4 bps to 4.86%
  • 5-yr: UNCH at 4.70%
  • 10-yr: +3 bps to 4.65%
  • 30-yr: +5 bps to 4.78%

Prior auction results:

  • High yield: 4.212%
  • Bid-to-cover: 2.66
  • Indirect bid: 75.3%
  • Direct bid: 15.0%

Average results of previous 12 auctions:

  • High yield: 3.872%
  • Bid-to-cover: 2.51
  • Indirect bid: 68.2%
  • Direct bid: 18.8%

Live From the Pit

From The TradersCommunity US News Desk