Solid Demand in 5-Year Treasury Auction Despite Continued Bond Selling

U.S. Treasuries trade around lows on another day of heavy selling in the belly, despite this we saw strong demand in the $49bln 5-yr note sale. The auction drew a high yield of 4.659%, which stopped through the when-issued yield by 1.2 bps while the bid-to-cover ratio (2.52x) and indirect takedown (71.1%) were above average. Equities continue to trade near their lows. The S&P 500 is down 0.3%, extending this week’s loss to 1.4% and its month-to-date loss to 5.5% with crude oil prices surging, WTI up over 3.5% on the day. The strong demand followed yesterday’s B+ rated 2-yr note sale.

The market has absorbed today’s new supply without issues. The desk gave a B+ rating on the auction. Tomorrow sees a $37 bln 7-yr note sale.

Today’s $49 bln bid-to-cover ratio (2.52x) and indirect takedown (71.1%) were higher than average.  The desk gave a B+ 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:  $49 billion
  • High yield 4.659%
  • WI level at the time of the option 4.671%
  • Stopped through the when-issued yield by 1.2 bps
  • Bid to cover 2.52X vs 12-month average of 2.50X
  • Directs (a measure of domestic demand) 17.9% versus 12-month average of 18.3%
  • Indirects (a measure of international demand) (71.1% versus 12-month average of 67.9%

Auction grade: B+

Yields after the auction.

  • 2-yr: -2 bps to 5.12%
  • 3-yr: +5 bps to 4.88%
  • 5-yr: +4 bps to 4.67%
  • 10-yr: +4 bps to 4.60%
  • 30-yr: +2 bps to 4.72%

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: 4.400%
  • Bid-to-cover: 2.54
  • Indirect bid: 67.9%
  • Direct bid: 18.3%

Average results of previous 12 auctions:

  • High yield: 3.959%
  • Bid-to-cover: 2.50
  • Indirect bid: 67.9%
  • Direct bid: 18.3%

Bond auctions week ahead:

Next week will bring some new supply.

  • Monday: 13- and 26-week bills
  • Tuesday: $48 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: 17-week bills 2-Year $49 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: 4- and 8-week bills; $37 bln 7-yr Treasury note auction results at 13:00 ET

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From The TradersCommunity US News Desk