The US treasury auctioned off $69B of 2-year notes at a high yield of
- WI level at the time of the auction 3.496%
- Tail +0.3 basis points vs 6 month average of -0.4 bps
- Bid to cover 2.54Xvs 6 month average of 2.61X
- Directs 34.1% vs 6 month average of 31.7%
- Indirects 53.2% vs 6 month average of 57.1%
- Dealers 12.7% vs 6 month average of 11.2%.
AUCTION GRADE:D+
Auction demand is typically assessed by comparing the key components against their six-month averages.
The bid-to-cover ratio measures the number of bids received relative to the amount offered, providing a snapshot of overall demand. Direct bidders represent the share taken by domestic U.S. investors, while indirect bidders reflect international participation. The dealer take shows how much of the issue was absorbed by the U.S. government dealer community.
In this auction, the only clear positive was that domestic demand exceeded its six-month average. International participation was below average, while dealers were left holding a larger share than normal, indicating weaker end-user demand. The auction tailed, and the bid-to-cover ratio came in below its recent average, reinforcing the softer tone.
While the result was not a disaster, and seasonal effects from the Christmas holiday week may have weighed on participation, the auction outcome was below average overall.
The U.S. Treasury continues to auction debt to fund ongoing deficits. Following today’s 2-year note auction, the Treasury will sell $70 billion of 5-year notes on Tuesday and $44 billion of 7-year notes on Wednesday.
