uploads/// Year Treasury Note Issuance versus Bid Cover Ratio

Overall Demand Tanks for 5-Year Treasury Notes


Sep. 2 2015, Published 1:01 p.m. ET

5-year Treasury notes auction

The five-year Treasury maturity is important. The difference between 30-year and five-year Treasury notes (or T-notes) yields gives the slope of the yield curve. The US Treasury Department holds auctions of five-year T-notes every month.

Mutual funds like the American Funds US Government Sec A (AMUSX) and the Oppenheimer Limited-Term Government A (OPGVX) have holdings in five-year Treasury notes.

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Key takeaways

  • Notes worth $35 billion were auctioned on August 26, 2015.
  • The issue’s coupon rate was lower at 1.375%, compared to 1.625% in July’s auction.
  • The high yield for August’s auction was lower at 1.463%, compared to 1.63% in July.
  • The bid-to-cover ratio fell by 9% to 2.6x, compared to 2.3x in July’s auction. The bid-to-cover ratio depicts overall demand for the auction.

Market demand analysis

Fundamental market demand, which includes bids from direct and indirect bidders, tanked from 73.0% of the accepted competitive bids in July to 57.5% in August’s auction.

Indirect bidders—a category that includes foreign central banks—accounted for 50.1% of the accepted bids, down from 67.5% in July. Meanwhile, the percentage of direct bids rose to 7.5% in August from 5.3% in July. Direct bids include bids from domestic money managers such as Invesco (IVZ) and Wells Fargo (WFC).

Due to weak market demand, primary dealers like Credit Suisse (CS) and Morgan Stanley (MS) had to take down a larger quantum of the auction. The takedown was 42.5% of accepted competitive bids, up from 27.2% in July’s auction.

Yield analysis

The yield on five-year Treasury notes in the secondary market moved up marginally after the auction from the previous day. It ended August 26 at 1.49%, compared to 1.48% on August 25.


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