Third Tailing Treasury Auction Concludes This Week's Bond Issuance

Moments ago, the Treasury department concluded its auction activity for the week with the issuance of $29 billion in 7 Year Notes (Cusip WN6), which in keeping with the prior two - 2 and 5 Year - auctions earlier in the week, also had a modest tail: the bond priced at a 2.010% yield (73.9% allocation) compared to a When Issued of 2.009%. Then again, considering the big drop in yield from April, when the same auction priced at 2.32% this is perhaps not too surprising.  Notably, this was the first 7 Year auction tail since December, and is once again notable considering the overall strength of the secondary bond market.

The internals of the auction were stronger than the tail indicated, with the Bid To Cover virtually unchanged in the last three months, at 2.60, and just above the 2.56 TTM average. Directs ended up with 24.09% of the auction, picking up 5% from last month's 19.09 and just above the recent auction average. This came at the expense of Indirect takedown dropping from 49.91% to 40.36%, the lowest since November, and also below the TTM average of 43.1%. Finally this means that Dealers we left holding 35.55% of the auction modestly below the 36.4% TTM average, however above last month's 31.01%. As in prior months expect the bulk of the Dealer allotment to be quickly flipped back to the Fed.

Finally, the secondary bond market appears to have looked at the auction results, shrugged, and continued grinding higher to levels not seen since last summer.


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