Unlike yesterday's blockbuster 2Y auction, today's sale of $61 billion in 5Y notes was somewhat weaker but hardly ugly.
The high yield of 0.831%, higher than the 0.710% from August, tailed then When Issued 0.829% by 0.2bps, which however was to be expected: in all of 2021 there have been just two 5Y auctions that stropped through and 6 that tailed (or were on the screws). This was somewhat surprising in light of the steep concession heading into today's auction and may explain why the market is unhappy with the results.
The bid to cover of 2.35 was virtually unchanged from last month, and right on top of the six-auction average.
The internals were slightly stronger, with Indirects taking down 62.7%, more than July's 58.1% and above the 58.9% recent average. And with Directs holding 17.5% Dealers were left with 19.8%.
Overall, while it was not a bad auction by any stretch - and certainly not bad enough to telegraph that the market is concerned about what Powell may say on Friday - the tail was unexpected after today's sharp move higher in yields, and the 10Y has pushed to fresh session highs, last seen at 1.3407%, up about 5bps on the session.