MBS LUNCH: 5yr Note Auction Results
The Treasury Department has successfully auctioned $39 billion 5 yr notes. This is the second auction at this record size, July being the first.
The bid to cover, a measure of demand, was 2.51%, much better than July's 1.92% bid to cover and higher than the four auction average of 2.26. (June 5 yr auction BTC was 2.58, May was 2.32, and April 2.22).
The auction stopped out at a high yield of 2.494%. At 1pm, the When-Issued (WI) 5 yr note was trading in high volume near a yield of 2.48%....which means there was a 1.4bp tail. (WI trade on a yield basis in anticipation of the establishment of the coupon).
Indirect bidders took 56.4% of the auction...much higher than the 36.7% they were awarded at July auction...but lower than the 62.8% taken in June. This is good participation from the indirects. Of note indirects took 77% of what they bid on.
Dealers were awarded 40.6%...less than normal. Of the $67bn tendered, dealers took home 23.5% of what they bid on...again less than average.
Overall: Good Auction
Prior to the auction, TSYs were generally weaker/flat, however since the results were released the benchmark rates market has made positive progress. And so have "rate sheet influential" MBS. Currently we are priced near the highs of the day...
CAUTION: PARNERTIA may pull us a bit lower if TSYs do not keep rallying. The range should continue to moderate all markets...