As we reported last week [3], as a result of spiking yields and due to an odd confluence of calendars and cash yields, today's 5 Year might end up as a 7 Year reopening (specifically 7 Year Series P-2018 CUSIP 91282RE2). It did: as a result of falling in the indicated yield range and having a 1.5% cash coupon, today's 5 Year is effectively a 7 Year bond reopening. From the TSY [4]: "Although a new 5-year note offering was announced on Thursday, August 22, 2013, the interest rate of 1-1/2 percent determined at today's auction for these securities matches that of an outstanding 7-year note with the same maturity and interest payment dates. In accordance with Treasury's past procedure, the 5-year notes will be considered an additional issue of the outstanding 7-year notes of Series P-2018 (CUSIP No. 912828RE2) originally issued August 31, 2011."
Curiously this happened even as someone was dumping the 5 Year aggressively into the auction, which closed at 1.624%, a fraction away from the 1.625% permitted range, and tailing materially from the WI which was trading at 1.620% at 1 pm.
The internals were therefore, as expected, very ugly. The Bid To Cover of 2.38 was lower than July's 2.46 and the lowest since July 2009. The Directs ended up with 12.7%, in line with the past 12 month average, but the Indirects got just 40.3%, down from 53.9% last month, and the lowest since January 2013. Dealers were left with 46.9%.
[5]
Overall a very ugly auction which likely will not leave the Bond King, who was pounding the table on the 5Y a month ago, very happy.