Weak Demand in U.S. 7-year Treasury Bond Auction Completes Week’s Offerings

U.S. Treasuries completed this week’s note auctions with a weak $35 bln 7-yr note auction. The sale drew a high yield of 4.062%, which tailed the when-issued yield by 1.5 bps. The bid-to-cover ratio (2.49x) and indirect takedown (65.5%) were below average. It appears the strong interest from foreign buyers of US Treasuries has mellowed off this month. The fixed interest desk rated the auction a C-. Yesterday treasuries the completion of a $43 bln 5-yr note auction which met mediocre demand.

  • The domestic demand was above its six-month average indicative of stronger domestic demand
  • International demand (indirect) was below the six-month average
  • Primary dealers were left with 13.71% versus normal around 13.1%

Auction Highlights

  • Duration: 7 Years
  • Amount:  $35 billion
  • High yield of 4.062%
  • WI 4.047% 
  • Tail 1.5 basis points versus six-month average of -0.2 basis points
  • Bid to cover 2.49X versus six-month average of 2.62X
  • Directs 20.8% versus six-month average of 18.8%
  • Indirects 65.5% versus six-month average of 68.1%
  • Dealers 13.71% versus six-month average of 13.1%

Auction grade: C-

Yields after the auction

  • 2-yr: +2 bps to 4.72%
  • 3-yr: +2 bps to 4.44%
  • 5-yr: -2 bps to 4.13%
  • 10-yr: -2 bps to 3.91%
  • 30-yr: -4 bps to 3.89%

Prior auction results:

  • High yield: 3.517%
  • Bid-to-cover: 2.69
  • Indirect bid: 77.1%
  • Direct bid: 16.8%

Average results of previous 12 auctions:

  • High yield: 3.207%
  • Bid-to-cover: 2.51
  • Indirect bid: 67.4%
  • Direct bid: 20.0%
5-Year Treasury Auction Attracted Above Average International Demand

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