Why did the issue price for 5-year Treasury notes fall?


Nov. 26 2019, Updated 2:07 p.m. ET

April’s five-year Treasury note 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 and the auction for the two-year Treasury note in the previous parts of this series. We’ll cover last week’s auction for five-year Treasury notes in this part of the series.

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The bid-to-cover ratio for five-year Treasury notes dropped to 2.79x for the auction held last week compared to 2.99x for the March auction. Non-dealers’ (pension funds, insurers, foreign banks, et cetera) share in five-year Treasury issuance also saw a dip, to 63% for last week’s auction compared to 74% in the March auction. The high yield rate increased to 1.732% for last week’s auction compared to 1.715% for the March auction, bringing down the offer price marginally to 99.48 from 99.57.

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 the auction of seven-year Treasury notes held on April 24, read on to the next part of this series.


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