Strong Demand in U.S. 7-year Treasury Bond Auction Follows Global Bond Strength Following BoE Action

U.S. Treasuries near best levels after 5-yr and 10-yr notes went to fresh highs in reaction to the completion of today’s $36 billion 7-yr note auction. The sale saw strong demand with a tail of one half of a basis point and the bid-to-cover ratio was above average. The strong auction followed today’s sharp drop in yields spurred on by the Bank of England action earlier. Today was the opposite to the past few days brutal sales of 5-yr and 2-yr notes. Equity markets were near their highs after the sale.

Today’s $46 bln 7-yr note -0.5 basis point is indicative of solid demand. The desk gave a B- rating on the auction.

  • The domestic demand was above its six-month average indicative of stronger domestic demand
  • International demand (indirect) was comfortably below the six-month average
  • Primary dealers were left with over 12% versus normal around 11.5%

Auction Highlights

  • Duration: 7 Years
  • Amount:  $36 billion
  • High yield: 3.898% (When-Issued: 3.903%)
  • Tail -0.5 bps
  • Bid to cover 2.57X vs 6 month average of 2.55X
  • Directs (domestic demand) 24.7% vs 6 month average of 19.8%
  • Indirects (international demand) 62.5% vs 6 month average of 68.7%
  • Dealers (dealers) 12.9% vs. 6 month average of 11.5%

Auction grade: B-

Yields after the auction

  • 2-yr: -17 bps to 4.14%
  • 3-yr: -21 bps to 4.19%
  • 5-yr: -23 bps to 3.98%
  • 10-yr: -21 bps to 3.75%
  • 30-yr: -15 bps to 3.68%

Prior auction results:

  • High yield: 3.130%
  • Bid-to-cover: 2.65
  • Indirect bid: 75.7%
  • Direct bid: 15.7%

Average results of previous 12 auctions:

  • High yield: 2.238%
  • Bid-to-cover: 2.43
  • Indirect bid: 65.1%
  • Direct bid: 20.7

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From The TradersCommunity US News Desk