Weak Demand for U.S. 7-year Treasury Bond Auction in Illiquid Holiday Market

U.S. Treasuries were higher even after the completion of today’s $35 billion 7-yr note auction, despite weak demand there with a high yield of 3.890%, which tailed the when-issued yield by 2.7 bps. The bid-to-cover ratio (2.33x) was below average (2.47x) and so was indirect takedown (61.8% vs. 65.3% average). The fixed interest desk rated the auction with a F. Yesterday there were two auctions a $43 bln 5-yr note auction and a $42 bln 2-yr note sale.

Today’s $35 bln 7-yr note -2.7 basis point tail is indicative of weak demand. The desk gave a F rating on the auction.

  • The domestic demand was below 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 21.4% versus normal around 11.7%

Auction Highlights

  • Duration: 7 Years
  • Amount:  $35 billion
  • High yield of 3.890%
  • WI 3.863%
  • Tail 2.7 basis points vs. six-month average of -0.4 basis points
  • bid to cover 2.33 vs. 2.57 X
  • dealers 21.4% vs. six-month average of 11.7%
  • directs 16.8% vs. six-month average of 19.6%
  • indirects 61.9% vs. six-month average of 68.7%

Auction grade: F

Yields after the auction

  • 2-yr: UNCH at 4.52%
  • 3-yr: -2 bps to 4.28%
  • 5-yr: -6 bps to 3.95%
  • 10-yr: -6 bps to 3.77%
  • 30-yr: -7 bps to 3.83%

Prior auction results:

  • High yield: 4.027%
  • Bid-to-cover: 2.43
  • Indirect bid: 63.2%
  • Direct bid: 22.7%

Average results of previous 12 auctions:

  • High yield: 2.666%
  • Bid-to-cover: 2.47
  • Indirect bid: 65.3%
  • Direct bid: 21.3%

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