Five-year note auction yields 5.033% on $70B sale

A high yield of 5.033% was achieved on $70 billion of five-year notes sold by the Treasury. This compared with a when-issued (WI) yield of 5.002% shortly before the sale. The resulting tail of 3.1 basis points far exceeded the 0.6-basis-point average over the past six auctions.

• The bid-to-cover ratio came in at 2.21X, below the 2.33X average.
• Direct bidders took 29.92%, above the 21.8% average.
• Indirect bidders accounted for 54.31%, below the 65.2% average.
• Dealers ended up with 15.77%, higher than the 12.9% average.

The auction received a grade of D. Although direct bidders increased their participation, this did not compensate for the drop in indirect demand. The combination of a lower bid-to-cover ratio and a large tail indicates that investors demanded a higher yield than anticipated to take down the supply. Dealers had to take on a greater proportion than usual. For market participants, the tail is the most telling signal: despite the WI yield sitting at 5.002% beforehand, an extra 3.1 basis points were required for the auction to clear.