Mediocre, Tailing 5Y Auction Prints At 7 Month Low Yield

If yesterday"s 5Y auction saw blistering buyside demand, and was the first 5Y auction to avoid tailing in 2017, today"s 7Y left much to be desired.

Printing with a high yield of 2.06%, the auction tailed modestly to the 2.058% When Issued, the first tail since September. This was the lowest yield on the 7Y tenor since October"s 1.653%, and below the 6 auction average of 2.222%. 

The Bid to Cover of 2.54 disappointed, printing below last month"s 2.733, and also below the 6-auction average of 2.58.

Finally, the internals were also mixed, with Indirects taking down 61.2%, a steep drop from last month"s record 81.7%, although the decline was offset by jump in Directs, which rose from 9.5% to 17.2%, 70% above the 6 month average of 10.7%, and leaving 21.6% to Dealers, just above the 18.3% 6MMA.

Overall, a mediocre auction and certainly a disappointment from yesterday"s stellar 5 Year auction, although hardly a disaster, and as a result the curve is little changed after the auction.

Blistering Demand For 5Y Trasury Auction; First "Stop Through" In 2017

After 4 consecutive 5Y auctions that resulted in a "tail", moments ago the Treasury sold $34 billion in 5Y paper which finally "stopped through" the When Issued for the first time since December, printing at a High Yield of 1.831%, 0.7bps through the 1.838% When Issued.

Another confirmation that like yesterday"s 2Y auction today"s 5Y issuance was stronger than expected, was the jump in the Bid to Cover which rose to 2.67, the highest since December, and well above the 2.42 6 month average, as total bids of $95.0 billion were received for $38.1BN in notes.  Additionally, the internals were strong too, with Indirecst rebounding from last month"s 57.3% low to 68.7%, above the 6 month average of 63.1%, while Directs were awarded 8.6% of the auction, above the 5.3% in April and 6MMA. Dealers were left just 22.7% of the auction, the lowest going back to August 2016.

Overall, a very strong auction, and certainly better than what the market had expected.