Treasury 7-year auction preview: the sale should be decent
Treasury 7-year auction preview: the sale should be decent, and the best of the three. But, it's not likely to be stellar. The note has cheapened 3 bps to 3.060% as some of the recent flight to safety is unwound, and the higher rate should bring in buyers. An award rate here would be 3 bps above the September stop, and would be the cheapest going back to April 2010. That should be attractive, although the issue is more mixed on the curve. The note is less sensitive to Fed policy than the 2s or 5s, and the recent modest easing in rate hike expectations may support. The outlook on inflation is mixed after the Beige Book noted some impacts from tariffs, though recent price data have been relatively tame. 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 weakness cover stats on 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 (analysts don't see that however). The note is not tight in repo, though it could benefit at the margin from 5-year specialness. Also, CFTC data show speculators are short. 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%.