Tailing 5Y Auction Prices At Lowest Yield Since 2017

After yesterday's surprisingly stellar 2Y auction, moments* ago the Treasury sold $41 billion in 5Y paper in a decidedly weaker auction.

*this habbened a few hours ago

Today's auction stopped at a yield of 2.172%, which while far below February's 2.489%, and the lowest since November 2017, tailed the 1pm When Issued 2.162% by 1 basis point, the biggest tail since December's 2.3bps.

The internals were lackluster as well, with the Bid to Cover dropping to 2.35 from 2.40 last month, if right on top of the 2.35 six auction average. And while Indirects took down a healthy 59%, above February's 57.7% and better than the 58% recent average, it was nowhere near the spectacular Indirect demand observed in yesterday's 2Y auction. In other bidding groups, Dealers took down 23.8% below the 30.5% six auction average, while Direct buyers were left with 17.2% of the auction, modestly below February's 22.5% if solidly above the six auction average of 11.5%.

Overall, a mediocre auction where the lack of shorts coupled with the recent collapse in yields may have resulted in limited demand, even though the final result was far from concerning.

https://www.zerohedge.com/news/2019-03-27/tailing-5y-auction-prices-lowest-yield-2017

This is who participates in these auctions-for the most part. You are required to participate in this process to maintain the PD tag with the FRBNY:

Primary Dealers

https://www.newyorkfed.org/markets

How does it work?

US Treasury auctions: measuring the effectiveness of primary markets for government securities

How should government bonds be sold? Research typically emphasizes how the auction design affects outcomes depending on the nature of demand and the competitive environment. This study combines models of strategic bidding in Treasury auctions with detailed bidding data to construct empirical measures that reveal the effectiveness of auctions. Applying these methods to data on US Treasury auctions shows that the gains from optimizing the auction mechanism are no more than 5 basis points. The research also quantifies the advantage enjoyed by primary dealers in these markets, who are able to observe the ‘willingness-to-pay’ of their customers who route their bids through them.

https://microeconomicinsights.org/us-treasury-auctions-measuring-effectiveness-primary-markets-government-securities/