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Preview 7Y Auction: Demand Test Moves Further Down The Curve

US TSYS/SUPPLY

The Treasury concludes this week's coupon issuance, and a 2-day auction mini-spree, with today's sale of $47B 7-Yr Note (1300ET).

  • This follows on from mixed auction results Monday (weak 2Y and solid 5Y sales), though today's sale presents arguably a different demand test with the 7Y segment less sensitive to Fed rate policy than those.
  • The last 7Y auction (Feb 24, for $50B) traded through by 1bp on a high yield of 1.91% and bid-to-cover of 2.36x, with dealers taking just 12.3% (5-auction averages for those stats are 1.64%, 2.32x, and 16.4%, respectively).
  • As with much of the curve, 7s yields are trading at multi-year highs (2.65% posted yest was highest since March 2019). But relative value on the curve is not particularly compelling: the 5s-7s-10s butterfly has been fairly flat for most of 2022, albeit at 8bp now is up from zero earlier in the month.
  • Likewise, with yields off 10bp from session highs (currently 2.53%), the concession going into the auction isn't quite as compelling as it might have been.
High yieldWhen-issued yieldTrade through (tail)High - Median SpreadBid-to-coverPrimary Dealer PercentIndirect PercentDirect PercentOffering Amount
5-Auction Avg1.64%1.64%-0.37.12.3216.42%61.79%21.79%56
24-Feb-221.91%1.92%16.52.3612.32%63.85%23.82%50
27-Jan-221.77%1.77%0.16.92.3614.49%62.65%22.86%53
29-Dec-211.48%1.46%-2.38.32.2121.29%59.25%19.45%56
23-Nov-211.59%1.60%0.95.62.4217.43%59.29%23.28%59
28-Oct-211.46%1.45%-1.48.12.2516.57%63.89%19.54%62
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