Stifled Demand at 7-year Treasury Bond Auction with International Buyers Returning

U.S. Treasuries completed this week’s note auctions with a $41bln 7-yr notes that met stifled demand, post-auction bonds climbed off their afternoon lows. The sale drew a high yield of 4.109%, which tailed the when-issued yield by 0.3 bps. That is 4.109% (When-Issued: 4.106%). However, the bid-to-cover ratio (2.57x vs 2.54x average) and indirect takedown (69.1% vs 68.9%) was up from 63.7% last month. In deference to yesterday’s poor 5-year auction. Equities bounced off their afternoon lows alongside the Treasury market’s positive response to the 7-yr note sale. The sale is ahead of tomorrow’s release of Fed favorite, the PCE report for December.

  • The domestic demand was below its 12-month average indicative of weaker domestic demand
  • International demand (indirect) was above the 12-month average.
  • Primary dealers were left with 13.90% v 12-month average of 12.9%
  • The desk gave a B- rating on the auction.

Auction Highlights

  • Duration: 7 Years
  • Amount: $41 billion
  • High-yield 4.109%
  • WI level at the time of the auction 4.106%
  • Tailed the when-issued yield by 0.3 bps.
  • Bid to cover 2.57X v 12-month average of 2.54X
  • Directs 17.0% v 12-month average of 18.2%
  • Indirect 69.1% v 12-month average of over 68.9%
  • Dealers 13.9% v 12-month average of 12.9%

Auction grade: B–

Yields after the auction.

  • 2-yr: -5 bps to 4.32%
  • 3-yr: -4 bps to 4.14%
  • 5-yr: -6 bps to 4.03%
  • 10-yr: -5 bps to 4.13%
  • 30-yr: -3 bps to 4.38%

Yields before the auction.

  • 2-yr: -6 bps to 4.31%
  • 3-yr: -6 bps to 4.12%
  • 5-yr: -5 bps to 4.03%
  • 10-yr: -4 bps to 4.13%
  • 30-yr: -5 bps to 4.37%

Prior auction results:

  • High yield: 3.859%
  • Bid-to-cover: 2.50
  • Indirect bid: 63.7%
  • Direct bid: 19.4%

Average results of previous 12 auctions:

  • High yield: 4.048%
  • Bid-to-cover: 2.54
  • Indirect bid: 68.9%
  • Direct bid: 18.2%

Bond auctions this week:

This week will bring some new supply.

  • Monday: $75 billion 13-week bills, $68 billion 26-week bills,
  • Tuesday: $75 billion 42-day cash management bills, 46 billion 52-week bills, $60 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: $56 billion 17-week bills; $61 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: $80 billion 4- and 8-week bills; $41 bln 7-yr Treasury note auction results at 13:00 ET
Solid Demand at 2 Year Treasury Auction with Higher International Demand
Anemic 5-Year Note Treasury Auction, Tails Two Basis Points
Bond Traders Weekly Outlook: What Would a 2024 Global Yield Spike Do?

Live From the Pit

From The TradersCommunity US News Desk