Treasury 5-year auction outlook: the $38 B 5-year sale may not do much better
Treasury 5-year auction outlook: the $38 B 5-year sale may not do much better than yesterday's poor 2-year offering. The when issued note has backed up to 2.995% and traders would love to get a 3% coupon. A stop here would be some 23 bps above the August stop, and would the highest award rate since the 3.00% from August 2008. Yet, similar conditions didn't help the 2-year much. The lack of such could be discouraging at the margin. While the Fed is unanimously expected to hike rates 25 bps Wednesday, uncertainty over the trajectory may keep some buyers sidelined as well. The note is on the tight end of the repo spectrum, though the 2-year remains the firmest, yet there also wasn't much of a short covering bid. The note is moderately attractive on the curve. Indirect bidding is typically solid for this maturity and analysts expect such today, better than the 62.8% average, since there is a 303 bp yield pick up to the German note. The advent of month- and quarter-end ahead of the long holiday weekend could give some support. The August sale stopped at 2.765% and saw a 2.49 cover (2.49 average) and a 66.2% indirect bid (62.8% average), with direct bidders taking 9.0% and primary dealers accepting 24.7%. Remember that ahead of this sale is a $40 B 4-week offering and a $17 B 2-year FRN reopening.