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

High Yield Rose for the 5-Year Treasury Notes Auction



Five-year T-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 Department of the Treasury holds auctions of five-year T-notes every month.

Mutual funds like the American Funds U.S. Government Securities Fund – Class A (AMUSX) and the T. Rowe Price U.S. Treasury Long-Term Fund (PRULX) have holdings in five-year T-notes.

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Key takeaways

  • T-notes worth $35 billion were auctioned on November 24, 2015.
  • The issue’s coupon rate was at 1.63%—higher than 1.38% in October’s auction.
  • The high yield for November’s auction was higher at 1.67%—compared to 1.42% in October.
  • The bid-to-cover ratio rose by 3.7% to 2.5x—compared to 2.4x in October’s auction. The bid-to-cover ratio shows the overall demand for the auction.

Market demand analysis

Fundamental market demand includes bids from direct and indirect bidders. It rose from 62.8% of the accepted competitive bids in October to 66.8% in November’s auction.

Indirect bidders—a category that includes foreign central banks—accounted for 56.7% of the accepted bids in November. It fell from 59.0% in October. Meanwhile, the percentage of direct bids rose to 10.2% in November from 3.8% in October. Direct bids include bids from domestic money managers—for example, Invesco (IVZ) and Wells Fargo (WFC).

Due to the rise in the market demand, primary dealers like Credit Suisse (CS) and Morgan Stanley (MS) had to takedown a smaller quantum of the auction. The takedown was 33.2% of the accepted competitive bids—down from 37.3% in October’s auction.

Yield analysis

The yield on the five-year T-notes in the secondary market fell by four basis points after the auction—compared to the previous day. It ended at 1.66% on November 24—compared to 1.70% on November 23.


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