5Y Note Preview: Another Concession Required?

Today's $55B 5Y Note (CUSIP: 91282CJN2) auction at 1300ET/1800UK - following on from the biggest 2Y auction tail since May - comes as 5s have been a key beneficiary of softer economic data and deepening Fed cut pricing.

• The current prevailing when-issued yield (4.43% per BBG data) is nearly 50bp below October's high yield (which was the highest at auction since 2007), and just above August's auction.
• The October 25th 5Y auction was the weakest of the year, tailing by 1.7bp on a high yield of 4.899% alongside poor peripheral statistics (the bid-cover of 2.36x and primary dealer takeup of 19.41% were respectively the lowest/highest of 2023).
• Prior to October, September's sale traded through solidly (1.3bp), with August's "on the screws".
• From a relative value perspective: 5s have been outperforming and are trading richer to the curve since the Oct 25th auction: the 2s-5s-10s is fly is last -45bp (vs -30bp a month ago); 2s-5s-7s is -49bp (vs -32bp a month ago). 2s5s had bull flattened to -47bp (going into the 2Y auction), vs -29bp going into 5Y auction day last month.
• The 5-auction average bid-cover ratio is 2.51x, with average primary dealer takeup 14.03%/indirects 66.61%/directs 19.36%.