Record 5Y Treasury Prices At Record Low Yield In Disappointing, Tailing Auction
Mon, 07/27/2020 – 13:17
Less than two hours after today’s first coupon auction, when the Treasury sold a record amount of 2Y paper in a disappointing auction, moments ago the Treasury concluded the second coupon auction of the day, when it sold another record amount of paper, this time 5 Year bonds, at a record low yield in what however was another subpar auction.
Specifically, the Treasury sold a record $49 billion in 5Y notes at a yield of 0.288%, lower than June’s 0.33% and the lowest on record, if 0.7bps wider than the When Issued 0.281%.
Similar to the earlier 2y auction, the 5y Bid to Cover slumped from 2.58 last month to 2.32 and below the 6 month average of 2.49.
The internals were also ugly with Indirects sliding to 58.1%, below last month’s 62.3%, and just under the 58.9% recent average. And with directs taking down 12.3%, Dealers were left holding 29.6% of the auction.
Bottom line: two coupon auctions today, both of which priced weaker than expected as buyers were clearly looking for concessions to take down record amounts of paper. It is also possible that with the Fed on deck, buyers were more interested in bidding their time, although it is unlikely that the Fed will say anything that will materially boost or dampen appetite for US paper.
For now, however, two consecutive tailing auctions have pushed 10Y yields to session highs… which indicatively is still below 0.60% just so it is clear that as the US bond market Japanifies further, 2 basis point hiccup is now seen as a remarkable move.