Treasury 5-year auction outlook: the $36 B offering should be o
Treasury 5-year auction outlook: the $36 B offering should be ok, like the June auction, as well as yesterday's 2-year sale. The 5-year is still the sweet spot on the curve. The when issued yield is slightly lower, down -0.05 bps at 2.825%. A stop there is about 10 bps cheaper than the 2.719% June award rate, though it's a bit richer than the April and May rates which were the highest in years. Lack of a concession could limit the marginal buyer. However, analysts suspect there will be a decent short covering bid after the recent market selloff and as the note has trade special in repo the last few days. The 5s-30s spread has flattened slightly today to 24.9 bps from 27.2 bps Monday, making it somewhat attractive, though it's widened from 19.9 bps two weeks ago. Indirect should remain solid given low, and even negative rates on other 5-year sovereigns. Indeed, it offers a 300 bp pick up to the German note which trades at -0.18%. Some expectation for month-end buying next week could provide support too. Barclays estimates its August 1 extension at 0.06 years, about par for the course. The June auction was decent, stopping at 2.719% and garnering a 2.55 cover (2.49 average), with a 62.0% indirect bid (63.3% average). Meanwhile, just ahead is the $18 B 2-year FRN at 11:30 ET.