Another wave of record-breaking U.S. bond auctions! 5-year demand is weak

Wall Street Sights

2024-04-25 06:07Posted on the official account of Shanghai Wall Street

On Wednesday local time, the U.S. Treasury auctioned $70 billion of 5-year Treasury bonds, and the results of this auction were significantly worse than the shorter-term 2-year U.S. Treasury auction on Tuesday.

The $70 billion auction increased by $3 billion from $67 billion last month and was the highest amount on record for the maturity of U.S. Treasuries. The market is widely expecting more record-breaking U.S. Treasury auctions in the future.

The winning interest rate for the auction was 4.659%, up sharply from 4.235% last month and the highest yield on the Treasury note since the auction last October, when it was 4.899%. The pre-issue rate of 4.655% is 0.4 basis points lower than the final bid rate, and this tail spread reflects weak demand.

The auction has a bid multiple of 2.39, down from 2.41 in the previous auction and an average of 2.41 over the past six renewals.

Direct bidders, a measure of domestic demand in the United States, including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies and individuals, were allotted 19.2 percent, compared with an average of 17.9 percent in the last six auctions.

Overseas demand is relatively sluggish. Indirect bidders, a measure of overseas demand, were allotted 65.7% of indirect bidders, usually through primary dealers or brokers, up from 70.5% in the previous month but slightly higher than the recent average of 65.4%.

As the "receiver" who undertakes all the unpurchased supply, the primary dealers are allocated 15% in this round, which is lower than the recent average of 16.7%.

Financial blog Zerohedge commented that it was a mediocre U.S. Treasury auction and accelerated the intraday rally in U.S. Treasury yields. More record-breaking U.S. bond auctions are expected in the future, after all, the U.S. has now entered a Minsky moment where bonds are issued only to pay interest on existing debt.

After yesterday's strong two-year Treasury auction, some analysts warned that Wednesday's $70 billion five-year Treasury auction and Thursday's $44 billion seven-year Treasury auction may not have such strong demand.

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