Weak Demand in 5-Year Treasury Auction Amongst Continued Bond Selling

Deja Vue for U.S. Treasuries with another day of heavy selling in the belly, fresh lows in reaction to the just-completed $52bln 5-yr Treasury note auction, which met weaker demand than yesterday’s 2-yr note sale. The auction drew a high yield of 4.899%, which tailed the when-issued yield by nearly two basis points. The bid-to-cover ratio (2.36x) and indirect takedown (61.5%) were below average. Longer tenors lagged from the start, but the 2-yr note recently turned lower after holding a modest gain through the bulk of the morning. The fixed interest desk gave the auction a D rating. The soft demand followed yesterday’s C rated 2-yr note sale. The market has absorbed today’s new supply. Tomorrow sees a $38 bln 7-yr note sale.

Equities have seen continued pressure, hitting fresh lows alongside Treasuries. The S&P 500 (-1.3%) is now down 0.7% for the week while the Nasdaq (-2.1%) underperforms, having given up 0.9% since last Friday.

  • The domestic demand was above its 12-month average indicative of domestic demand higher on the curve.
  • International demand (indirect) was below 12-month average.

Auction Highlights

  • Duration: 5 Years
  • Amount:  $52 billion
  • High yield 4.899% (When-Issued: 4.880%)
  • WI level at the time of the option 4.880%
  • Tailed when-issued yield by nearly two basis points.
  • Bid to cover 2.36X vs 12-month average of 2.52X
  • Directs (a measure of domestic demand) 19.1% versus 12-month average of 18.2%
  • Indirects (a measure of international demand) (61.5% versus 12-month average of 68.9%

Auction grade: D

Yields after the auction.

  • 2-yr: +3 bps to 5.13%
  • 3-yr: +6 bps to 4.97%
  • 5-yr: +9 bps to 4.91%
  • 10-yr: +11 bps to 4.95%
  • 30-yr: +12 bps to 5.08%

Yields Before the Auction.

  • 2-yr: -1 bp to 5.09%
  • 3-yr: +3 bps to 4.94%
  • 5-yr: +5 bps to 4.88%
  • 10-yr: +8 bps to 4.92%
  • 30-yr: +10 bps to 5.06%

Prior auction results:

  • High yield: 4.659%
  • Bid-to-cover: 2.52
  • Indirect bid: 71.1%
  • Direct bid: 17.9%

Average results of previous 12 auctions:

  • High yield: 3.995%
  • Bid-to-cover: 2.52
  • Indirect bid: 68.9%
  • Direct bid: 18.2%

Bond auctions week ahead:

New supply this week.

  • Monday: 13- and 26-week bills
  • Tuesday:  42-day cash management bills, $51 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: 17-week bills; 2-year floating rate notes, $52 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: 4- and 8-week bills; $38 bln 7-yr Treasury note auction results at 13:00 ET

Live From the Pit

From The TradersCommunity US News Desk