Why did demand for 7-year Treasury notes remain stagnant?
April’s seven-year Treasury notes auction
Last week’s Treasury auctions included $25 billion one-month (or four-week) T-bills auctioned on April 22, plus $25 billion three-month (or 13-week), and $23 billion six-month (or 26-week) T-bills auctioned on April 21.
Apart from T-bill auctions, last week also saw auctions for $32 billion two-year Treasury notes on April 22, $35 billion five-year Treasury notes on April 23, and $29 billion seven-year Treasury notes on April 24.
We already covered T-bill auctions as well as auctions for two-year and five-year Treasury notes in the previous parts of the series. We’ll cover last week’s auction for seven-year Treasury note in this part of the series.
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The bid-to-cover ratio for seven-year Treasury notes was unchanged, at 2.60x for last week’s auction from 2.60x for the auction held in March. The high yield rate (the highest yield and lowest price accepted) came in at 2.317% compared to 2.258% for the March auction. However, only 47% of the auctioned securities were allotted at the highest yield compared to 97.9% for the March auction. Dealers were awarded 31% of the issued notes, meaning direct bidders (such as pension funds and insurers) as well as indirect bidders (such as foreign governments and banks) took the prime spot, with 69% notes heading their way.
Investors seeking to invest in Treasury notes can invest in ETFs such as the iShares Barclays 1-3 Year Treasury Bond Fund (SHY), iShares Barclays 3–7 Year Treasury Bond Fund (IEI), and Vanguard Short-Term Government Bond ETF (VGSH). Investors looking at an intermediate-term investment horizon but willing to take higher risk can invest in corporate bond ETFs such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG).
To find out about last week’s investment-grade bond issuance, read on to the next part of this series.