5 Year Treasury Note Auction Results and Reactions
The Treasury has successfully auctioned $42 billion 5 year notes. This was the 6th consecutive offering at this size and likely one of the last times as the Treasury is expected to reduce auction sizes in the months ahead.
The bid to cover ratio, a measure of auction demand, was 2.75 bids submitted for every one accepted by the Treasury. This is above the ten auction average of 2.32 and the five auction average of 2.70
Bidding stopped out at a high yield of 2.54%, slightly below the 1pm "When Issued" yield.
Primary Dealers, aka the street, took 36.7% of the issue. This is below the ten auction average of 39.9% of the total auction award and the five auction average of 43.0%. This is a positive as it implies dealers were not forced to offset a lack of bidding from another account.
Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 14.3% of the issue. This is still well above the rising ten auction average of 6.2% and the five auction average of 9.4% of total auction. In fact I believe that is the highest percentage award to direct bidders at a 5yr auction...EVER
Indirect bidders were awarded 48.9% of the auction. This is above both the five and ten auction averages of 47.6% and 44.9% respectively. This was the best indirect turnout since late December when overseas bargain buyers took advantage of a late quarter lack of liquidity induced spike in benchmark yields.
Plain and Simple: Dealers didn't have to do much heavy lifting as both direct and indirect bidders showed up in numbers. Direct bidders took home a record award. Indirects showed up regardless of the recent decline in return yields. I think this was a decent auction overall...especially when you consider how fast and how far rates have moved over the last few days.
Benchmark 10s continue to consolidate after the auction...but the market is essentially quiet. The 3.625% coupon bearing 10 year TSY note is -0-15 at 98-31 yielding 3.751%....we are banging our heads off of short-term support. If we break support after 215pm then our next test is 3.78%.
The most obvious post auction movement in the market is however in yield curve spreads, specifically the 2s/10s curve is down to 269bps after battling resistance at 275 for the past few days.
The FN 4.5 is -0-11 at 100-10 yielding 4.469%. The secondary market current coupon yield is up 5.6 basis points at 4.461%. The CC yield is +71.0bps/10yrTSY and +71.2bps/10yr IRS. After tightening up early in the session, yield spreads are now basically unchanged on the day.
10s and "rate sheet influential" MBS coupon have stored energy at key pivot points....all is quiet ahead as market participants await the 215 FOMC STATEMENT
S&Ps are up 6.5 points to 1187....