Solid Demand in 2 Year Treasury Sale in Final Auctions for 2023

Treasury auctions finish off 2023 with another week of heavy supply. The 2-year $57 billion two-year notes auction kicked off this weeks’ auctions and met strong demand. A high yield of 4.314% stopped through the when-issued yield by 0.7 bps. The bid-to-cover ratio however was softer than the 12-auction average at 2.68x vs 2.73x and indirect takedown also lower at 61.9% vs 62.9%). In a post-Christmas range-bound session we saw modest gains in 10s and 30s with a slim loss in the 2-yr note. The desk gave an A- rating to the auction. The stock market gained amid the Santa Claus rally period, which includes the last five trading days of the year and the first two trading days of the new year.

Crude oil extended its recent rally to just below its high from December 1 (76.76), while the U.S. Dollar Index fell 0.2% to 101.46. The treasury’s heavy supply this week includes $57 billion of two-year notes, $58 billion of 5-year notes and $40 billion of 7-year notes.

Auction Highlights

  • Duration: 2 Years
  • Amount:  $54 billion
  • High-yield 4.314%
  • WI level at the time of the auction 4.321%
  • Stopped through the when-issued yield by 0.7 bps
  • Bid to cover 2.68X versus 12-month average of 2.73X
  • Directs 23.9% versus 12-month average of 20.4%
  • Indirects 61.9% versus 12-month average of 62.9%
  • Dealers 14.2% versus 12-month average of 14.7%

Auction grade: A-

Yields after the auction.

  • 2-yr: +1 bp to 4.34%
  • 3-yr: UNCH at 4.04%
  • 5-yr: +1 bp to 3.89%
  • 10-yr: UNCH at 3.90%
  • 30-yr: UNCH at 4.05%

Yields Before the Auction.

  • 2-yr: +3 bps to 4.36%
  • 3-yr: +2 bps to 4.06%
  • 5-yr: +1 bp to 3.89%
  • 10-yr: -1 bp to 3.89%
  • 30-yr: -2 bps to 4.04%

Prior auction results:

  • High yield: 4.887%
  • Bid-to-cover: 2.54
  • Indirect bid: 57.4%
  • Direct bid: 23.9%

Average results of previous 12 auctions:

  • High yield: 4.579%
  • Bid-to-cover: 2.73
  • Indirect bid: 62.9%
  • Direct bid: 20.4%

Bond auctions week ahead:

This week will bring some new supply.

  • Monday: Christmas Holiday
  • Tuesday: 13- and 26-week bills, 52-Week 42-day cash management bills, $57 billion 2-yr note auction
  • Wednesday: 17-week bills; $58 billion 5-yr note auction
  • Thursday: 4- and 8-week bills; $40 billion 7-yr note auction.

Live From the Pit

From The TradersCommunity US News Desk