Indirects Absent at 5 Year Note Auction. MBS Sideways Near Session Lows

Treasury just sold $35 billion 5 year notes. This auction amount was unchanged from the previous 5yr note offering.

The bid to cover ratio, a measure of auction demand, was 2.82 bids submitted for every 1 accepted by Treasury. This is close to both the five and ten auction averages.

83.8% was awarded at the high yield of 1.33%, which was 0.8bps above the 1pm "When Issued" yield.

Primary dealers took down 48.8% of the issue and 26.2% of what they bid on. Both metrics are above average for the street.

Directs were awarded 11.7% of the competitive bid and 29.5% of what they bid on. This is a noticeable improvement from the previous three 5-year auctions.

Indirects took home 39.5% of the issue and 69.3% of what they bid on. This is a noticeable reduction in indirect buyer demand relative to the previous three 5-year note auctions.

Plain and Simple: Indirect buyers weren't too aggressive  but their lack of participation was more than offset by primary dealers and directs.  The high yield did tail the 1pm "When Issued" yield. This re-illustrates the markets bias to let TSYs cheapen up ahead of November 3.

Market Reaction...

10s are off their yield highsand "rate sheet influential" MBS coupons are off their intraday price lows....but both are generally bouncing around near the weakest levels of the day.

10s are currently -15/32 at 99-12 yielding 2.698% (+5.3bps)

The December FNCL 3.5 is -0-06 at 99-27. The December FNCL 4.0 is -0-02 at 102-16.