Solid Demand in 5-Year Treasury Auction as Market Absorbs Today’s New Supply

U.S. Treasuries subdued while the 3-yr note outperforms, holding a solid gain after reclaiming its initial loss after the recently completed $46 bln 5-yr note sale met solid demand with an above-average bid-to-cover ratio and indirect takedown. The auction drew a high yield of 4.400%, which tailed the when-issued yield by 0.1 bps while the bid-to-cover ratio (2.54x) was a bit above average (2.48x) and indirect takedown (67.9%) just above the prior 12-auction average (67.3%). The strong demand followed the earlier A rated 2-yr note sale. The market has absorbed today’s new supply without issues. Equities continue to rally with the S&P 500 (+0.3%) and the Nasdaq (+0.8%).

The desk gave a C- rating on the auction. Today’s sale followed an earlier $45 bln 2-yr note auction. Tomorrow sees a $36 bln 7-yr note sale.

Today’s $46 bln bid-to-cover ratio (2.54x) and indirect takedown (67.9%) were mixed.  The desk gave a C- rating on the auction.

  • The domestic demand was above its 12-month average indicative of domestic demand higher on the curve.
  • International demand (indirect) was below 12-month average.

Auction Highlights

  • Duration: 5 Years
  • Amount:  $46 billion
  • High yield 4.400%
  • WI level at the time of the option 4.012%
  • Tailed the when-issued yield by 0.1 bps
  • Bid to cover 2.54X vs 12-month average of 2.48X
  • Directs (a measure of domestic demand) 18.3% versus 12-month average of 18.3%
  • Indirects (a measure of international demand) 67.9% versus 12-month average of 67.3%

Auction grade: C-

Yields after the auction.

  • 2-yr: UNCH at 5.05%
  • 3-yr: -3 bps to 4.71%
  • 5-yr: -1 bp to 4.43%
  • 10-yr: -1 bp to 4.23%
  • 30-yr: +1 bp to 4.30%

Yields Before the Auction.

  • 2-yr: +2 bps to 5.07%
  • 3-yr: -1 bp to 4.73%
  • 5-yr: UNCH at 4.44%
  • 10-yr: -2 bps to 4.22%
  • 30-yr: -2 bps to 4.28%

Prior auction results:

  • High yield: 4.170%
  • Bid-to-cover: 2.60
  • Indirect bid: 64.4%
  • Direct bid: 22.1%

Average results of previous 12 auctions:

  • High yield: 3.862%
  • Bid-to-cover: 2.48
  • Indirect bid: 67.3%
  • Direct bid: 18.3%

Live From the Pit

From The TradersCommunity US News Desk