Treasury 7-year auction outlook: the auction is likely to be the best of the three
Treasury 7-year auction outlook: the auction is likely to be the best of the three, as is often the case. Unlike the 2- and 5-year sale, there's some concession building with the when issued yield 2.5 bps cheaper at 3.055% as some of the recent flight to safety is unwound. It's also a 3 bps pick up versus September's 3.034% stop, and would be the highest going back to April 2010. The note is attractive on the curve. The auction could benefit at the margin from the proximity of month-end. And though less sensitive to Fed policy, the modest easing in rate hike expectations may support. The auction offers about a 300 bp yield pick up to the German 7-year. Also, the size of the auction is unchanged at $31 B; some of the weaker cover stats in the 2s and 5s partly resulted from the $1 B increases in auction sizes. On the other hand, general demand for Treasuries has been eroding and there are fears China may limit buying (if not sell their Treasury holdings) in retaliation for tariffs. Also there are some fears of rising inflation. The note is not tight in repo, though it could benefit at the margin from 5-year specialness. The September auction stopped at 3.035% with a 2.45 cover (2.51 average) and a 65.5% indirect bid (63.3% average). Direct bidders took 11.6%.