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

Coupon, High Yield Fell on 5-Year Treasury Notes in February


Feb. 29 2016, Updated 3:03 p.m. ET

Five-year Treasury notes auction

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

Mutual funds such as the Vanguard GNMA Fund Investor Shares (VFIIX) and the T. Rowe Price U.S. Treasury Long-Term Fund (PRULX) invest in five-year Treasury notes.

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Key takeaways

  • On February 24, 2016, five-year Treasury notes worth $34 billion were auctioned. that was $1 billion lower than the previous month’s auction.
  • The issue’s coupon rate was set lower at 1.1%, the lowest in recent times, compared to 1.4% in January’s auction.
  • The high yield for February’s auction was lower at 1.2%, the lowest in recent times, compared to 1.5% in December.
  • The bid-to-cover ratio was flat and came in at 2.4x in February’s auction. Bid-to-cover ratio depicts overall demand for the auction.

Market demand analysis

Fundamental market demand, which includes bids from direct and indirect bidders, rose from 62.2% of the accepted competitive bids in January to 77.3% in February’s auction.

Indirect bidders, a category that includes foreign central banks, accounted for 67.3% of the accepted bids in February, up from 53.5% in January. Meanwhile, the percentage of direct bids rose to 10.0% in February from 8.6% in January. Direct bids include bids from domestic money managers such as Invesco (IVZ) and Wells Fargo (WFC).

Due to a rise in market demand, primary dealers such as Credit Suisse (CS), Morgan Stanley (MS), and others, had to take down a smaller quantum of the auction. The dealer’s takedown was 22.7% of accepted competitive bids, a decline of 37.8% in January’s auction.

Yield analysis

The yield on five-year Treasury notes in the secondary market fell by 2 basis points after the auction from the previous day. It ended February 24, 2016, at 1.21% compared to 1.23% on February 23.


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