Weak Demand for U.S. 7-year Treasury Bond Auction as Growth Markets Shake

U.S. Treasuries were higher for the third consecutive day after the completion of today’s $35 billion 7-yr note auction, despite weak demand there with a high yield of 4.027%. The fixed interest desk rated the auction with a D after domestic demand was the only key metric higher than the six-month average at 22.72% vs. 19.1%. Earlier the European Central Bank rose rates 75-bps. The 10-yr yield saw a ten-day low.  Equity markets were near their lows after the sale.

Today’s $35 bln 7-yr note -01.1 basis point tail is indicative of weak demand. The desk gave a D 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 14.1% versus normal around 11.9%

Auction Highlights

  • Duration: 7 Years
  • Amount:  $35 billion
  • High yield: 4.027%
  • WI level at the time of auction 4.016%
  • Tail 1.1 basis points vs. six-month average of -0.4%
  • bid to cover 2.43X vs six-month average of 2.57X
  • Directs 22.72% vs. six-month average of 19.1%
  • Indirects 63.17% vs. six-month average of 69.0%
  • Dealers 14.1% vs. six-month average of 11.9%

Auction grade: D

Yields after the auction

  • 2-yr: -9 bps to 4.33%
  • 3-yr: -12 bps to 4.29%
  • 5-yr: -11 bps to 4.09%
  • 10-yr: -8 bps to 3.94%
  • 30-yr: -7 bps to 4.09%

Prior auction results:

  • High yield: 3.898%
  • Bid-to-cover: 2.57
  • Indirect bid: 62.5%
  • Direct bid: 24.7%

Average results of previous 12 auctions:

  • High yield: 2.452%
  • Bid-to-cover: 2.45
  • Indirect bid: 65.3%
  • Direct bid: 21.0%

Live From the Pit

From The TradersCommunity US News Desk