Weak Demand for U.S. 7-year Treasury Bond Auction With 3.280% High Yield and 2.1 bps Tail

Treasuries moved lower after the US Treasury 7-Year Bond Sale garnered a D- rating across the fixed Interest desk with weak demand from the international market. Indirects took down 61.9% compared to 77.9% previously. The tail was -2.1 basis points with WI level at time of the auction 2.801% and the high yield of 3.259% at the auction. This was another long tail, yesterday’s 10-year sale tailed by 3 bps, which was the most since 2010. Equity markets continued to sell off after the sale.

Today’s $40 bln 7-yr note -2.1 basis point is indicative of weak demand. The average is -0.5 basis points for this issue. The desk gave a D- rating on the auction.

  • The domestic demand was below its six-month average indicative of softer domestic demand
  • International demand (indirect) was also comfortably above the six-month average
  • Primary dealers were left with under 10% versus normal around 15.2%

Auction Highlights

  • Duration: 7 Years
  • Amount:  $40 billion
  • High yield: 3.280% (When-Issued: 3.259%)
  • Bid-to-cover: 2.48
  • Indirect bid: 61.9%
  • Direct bid: 20.4%
  • Tail -2.1 basis points

Auction grade: D-

Yields after the auction

  • 2-yr: +1 bp to 3.13%
  • 3-yr: UNCH at 3.21%
  • 5-yr: -1 bp to 3.25%
  • 10-yr: UNCH at 3.19%
  • 30-yr: -1 bp to 3.30%

Prior auction results:

  • High yield: 2.777%
  • Bid-to-cover: 2.69
  • Indirect bid: 77.9%
  • Direct bid: 15.76%

Average results of previous 12 auctions:

  • High yield: 1.766%
  • Bid-to-cover: 2.36
  • Indirect bid: 62.7%
  • Direct bid: 21.2%

Live From the Pit

From The TradersCommunity US News Desk

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