The largest auction of 5-year bonds ever held by the Treasury was met with mediocre results, according to one strategist.
According to Lawrence Gillum, of Charlotte, North Carolina, the 1pm Eastern sale resulted in indirect bidders taking 63.5%, or below the norm, and a bid-to-cover ratio that hovered around to the average observed in the last two months. chief broker-dealer fixed income strategist for LPL Financial.
Treasury auctions have gained greater scrutiny in recent months, given questions about whether investors would continue to step up purchases of government debt regardless of the U.S. fiscal outlook. Monday afternoon’s sale followed a $63 billion auction of 2-year notes earlier in the day that produced decent results, Gillum said.
Treasury yields remained slightly higher the day after the results of the second auction were released, with the 2-year rate BX:TMUBMUSD02Y trading around 4.73% and the 5-year yield at around 4 ,33%.
Future five-year auctions are about to get bigger, growing to $67 billion in March and about $70 billion in the second quarter, Gillum said by phone. Meanwhile, Monday morning’s sale of 2-year notes was the largest for that maturity since 2016, and the size of the upcoming sell-off for that part of the Treasury market is expected to grow over the next couple of months, he said.