Posted
The Treasury has successfully auctioned a record $42 billion 5 yr notes at a high yield of 2.175%, which is lower than the 1pm "When Issued" mid-market yield. The bid to cover ratio, a measure of demand, was 2.81 bids for every 1 accepted by the Treasury. Very strong demand.
Here is a recap of the auction results...
5-YEAR NOTES
YIELDS
High 2.175 pct
Median 2.100 pct
Low 1.940 pct
PRICE/ACCEPTANCES
Price 99.764325
Accepted at high 67.34 pct
Bid-to-cover ratio 2.81
AMOUNTS TENDERED AND ACCEPTED (dollars)
Total accepted 42,000,072,500
Total public bids tendered 118,040,288,500
Competitive bids accepted 41,831,884,000
Noncompetitive bids accepted 118,188,500
Fed add-ons 1,261,222,600
Primary Dealer Tendered 77,754,000,000
Primary Dealer Accepted 15,146,360,000
Primary Dealer Hit Rate 19.48% of what they bid on
Primary Dealer Overall Awarded 36.06% of issuance
Direct Bidder Tendered 5,160,000,000
Direct Bidder Accepted 1,198,000,000
Direct Bidder Hit Rate 23.22%of what they bid on
Direct Bidder Overall Awarded 2.99% of issuance
Indirect Bidder Tendered 34,958,100,000
Indirect Bidder Accepted 25,487,524,000
Indirect Bidder Hit Rate 72.91% of what they bid on
Indirect Bidder Overall Awarded 60.68% of issuance
Indirect Bidders and Direct Bidders took home 63.67% of the auction. This suggests strong demand from real money accounts and less need to lean on the support of primary dealers. Good auction....
Here's how today' auction compares to previous auctions.
Following the release of the results, the FN 4.0 is trading +0-06 at 99-25 yielding 4.035% and the FN 4.5 is +0-05 at 102-05 yielding 4.236%. The secondary market current coupon is 4.042%. The CC yield is +70/10yr TSY and +60/10yr swap. Current coupon yield spreads are TIGHTER on the day as MBS are outperforming benchmark yields...STILL.
After going sideways in the GREEN for most of the day, "rate sheet influential" MBS coupons tested the high side of the morning range following the strong 5 yr note auction...
TSYs and MBS continue to grind to the right. While the rates market is well bid (there is support under the market), unless the 10yr manages to break 3.32% resistance, the FN 4.5 has likely hit a price ceiling. Profit taking is expected at these rich "rate sheet influential" MBS valuations....but we expect bargain buyers to add collateral (buy MBS) on weakness as we approach month/year end.
Next Event: FOMC Minutes at 2pm
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