Lack Of Demand Greets Sale Of 5 Year Treasuries In Another Tailing Auction

In light of today's Treasury market weakness, and yesterday's poor 2 Year auction, many strategists had expected today's sale of $34 billion in 5 Year paper to tail, with Credit Agricole saying they were “Not enthusiastic” based on results of 2Y auction yesterday, as the 2Y auction “quite often” a signal for 5Y results adding that the 5Y “suffers from the flatness of the 3-5Y spread” and primary dealer balance sheets “heavy with off-the-run paper” in sector. BMO added that the tail was likely based on poor seasonals and “significant event risk,” namely next week’s FOMC and BOJ statements; Fed hawks are “likely to get louder as we get closer to December.” It also noted that the 5Y auction has tailed in October in 5 of past 6 years.

Well, the negative sentiment was spot on, and moments ago the Treasury announced that today's auction of 5Y paper indeed tailed, printing at 1.303%, tailling by 0.1bps. This was the highest yield since May of 2016 when the same paper priced at 1.395%. 

The internals were also depressed, with Indirects taking down 59.7%, below last month's 61.4%, and below the 6MMA of 61.8%. Directs took down 4.9%, below the average of of 6.2%, and leaving Dealers with 35.4% of the auction, notably above the 6 month average of 31.9%.

Overall, a poor auction, one which is likely to lead to result in another less than "stellar" auction when the Treasury sells 7 Year paper tomorrow.


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