Treasury 5-year auction preview:

Treasury 5-year auction preview: the $41 B auction should good demand on the heels of a well subscribed 2-year yesterday (including strong direct bidding). Like Monday, there's been no outright concession into the offering, with the when issued yield -2 bps lower at 1.585%. That's only fractionally cheaper than the 1.570% stop from October, but it would still be one of the lowest rates since late 2016. And with the Fed firmly on hold, there's little risk of a sharp jump in rates for now. The note is relatively attractive on the curve. The note, along with the 2-year (even after yesterday's $40 B sale), trades special in repo, suggesting a solid short covering bid. Indirect bidding should remain solid given the still low and negative-rate world. It provides a 218 bp yield pick up to the German 5-year. Headwinds include this week's hefty supply total, thinning holiday markets, and some competition from corporates, including a novel $6 B 3-, 5-, 10-, and 20-year deal from China. The October auction stopped at 1.570% and garnered a 2.41 cover (2.36 average) and a 65.7% indirect bid (58.7% average). Direct bidders accepted 11.5% (15.5% average), while primary dealers were awarded 22.8% (25.8% average).