Following yesterday's stellar 2Y auction, which saw such strong buyside interest that it was likely in anticipation of the Fed expanding its QE beyond T-Bills and into short-dated coupons, it was virtually impossible for today's 5Y auction to be remotely as strong. And while indeed its metrics were not nearly as impressive as those of yesterday's 2Y, today's just concluded sale of $41Bn in 5Y paper was still remarkable.
Pricing at a high yield of 1.570%, the auction stopped through the 1.574% When Issued, and 3bps below last month's 1.600%. And just like yesterday's 2Y auction, aside for the 1.365% auction stop in August, today's auction yield was the second highest going all the way back to Nov 2016.
The 2.41 bid to cover, while an improvement from last month's 2.32, was also better than the 6 auction average of 2.37. It was, however, smack in the middle of the range of the bids to cover on 5Y paper for the past 5 years which have centered on 2.50.
But it was the internals that were the most impressive, as Indirect, or foreign, buyers took down 65.7%, the most since August 2018, and clearly well above the 58.0% recent average. And with Directs taking down 11.5%, the lowest since December 2018, Dealers were left holding 22.8%, or modestly below the 25.3% recent average. Whether or not dealers will be able to flip this paper to the Fed in the near future remains to be seen.
Overall, a very strong auction, which priced without any notable concessions as the 10Y is trading just 1bps below its Tuesday close.