The Treasury has successfully auctioned $42 billion 5 year notes.

The bid to cover ratio, a measure of auction demand, was 2.55 bids submitted for every one accepted by the Treasury.  This is above the ten auction average of 2.32 but below the five auction average of 2.70.

Bidding stopped out at a high yield of 2.605%. This was way above the 1pm "when issued" bid.

Primary Dealers, aka the street, took 49.6% of the issue.  This is well above the ten auction average of 39.9% and the five auction average of 43.0%. Just like the 2 year note auction yesterday, dealers took home too much debt. While dealers don't mind a chunky award, there is such a thing as too much of a good thing. We do not want the street taking down higher percentages of the auction because they will need to get rid of excess supply...and they will not do it at cost.

Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 10.8% of the issue. This is above both the ten auction average of 6.2% and the five auction average of 9.4% of total auction.

Just like the 2 yr note yesterday, indirect bidders were awarded a paltry percentage of the auction. They took home 39.7% of the issue.  This is well below both the five and ten auction averages of 44.9% and 47.6% respectively. The next worst 5yr note indirect bidder turnout was July 29, 2009 when indirects were awarded 36.7%.

Plain and Simple: The bid to cover was light considering how much this issue cheapened prior to the auction. Blame a seller dominated marketplace for that though, traders saw an opportunity to push yields higher/prices lower...they clearly took it. The auction high yield confirms this theory. Dealers took down too much debt again, they will be forced to sell this inventory into a buyers market, which means they must adjust their offer price lower to attract demand. That pushes yields higher. Dealers will likely wait to distribute this supply until sellers are washed out. Direct bidder participation continues to trend higher...offsetting a lackluster turn out from indirect bidders who have been absent this week.

High                                 2.605 pct
Median                             2.539 pct
Low                                  2.450 pct

Price                               99.510730
Accepted at high                29.97 pct
Bid-to-cover ratio                      2.55

Total accepted                       42,000,034,600
Total public bids tendered     107,224,523,600
Competitive bids accepted      41,854,341,000
Noncompetitive bids accepted      120,693,600
Fed add-ons                           1,420,739,300
Primary Dealer Tendered        77,256,000,000
Primary Dealer Accepted         20,754,661,000
Primary Dealer Hit Rate       26.9% of their bid
Primary Dealer Award         49.6% of issuance 

Direct Bidder Tendered          10,927,000,000
Direct Bidder Accepted             4,502,000,000
Direct Bidder Hit Rate         41.2% of their bid
Direct Bidder Award            10.8% of issuance    

Indirect Bidder Tendered       18,895,830,000
Indirect Bidder Accepted        16,597,680,000
Indirect Bidder Hit Rate      87.8% of their bid
Indirect Bidder Award         39.7% of issuance
Issued date    March 31, 2010
Maturity date  March 31, 2015
CUSIP number   912828MW7

Here's how the market reacted:

If you haven't seen a reprice already, you will shortly.

As said this morning...might as well wait this out at this point. Pulling the trigger now is locking at the lows. Play the Range Until the Range Plays You! 3.85% is the outer limit of our range.