One day after the Treasury sold 2Y paper to blistering demand, the bond market was not quite as excited for today’s sale of $41 billion in 5Y Notes.
Stopping at a yield of 1.600%, the auction was up notably from last month’s 1.365% and certainly well wide of the record negative yield hit overnight in Japan’s 5Y bond, following fresh speculation that the BOJ will soon be cutting rates. It also tailed about 0.9bps to the 1.591 When Issued.
And while the Bid to Cover dipped from 2.48 to just 2.32, below the 6 auction average of 2.38, the internals were also subpar, as the Indirect takedown dropped from 59.7% to 58.8%, just higher of the six month average of 58.0%; and with Directs taking down 14.2%, well below last month’s 18.7%, Dealers were left holding 27.0% of the auction. Which, considering the increase in the Fed’s overnight and term repo facility sizes, means they will able to pledge these right back to the Fed and get cash for the paper they just spent $5.8 billion on.
Overall, a poor auction, and one which pushed the 10Y to session highs.