5-Year Treasury Auction Shows Solid Demand Despite Foreign Pullback

5-Year Treasury Auction Shows Solid Demand Despite Foreign Pullback 

Following the strong performance of the 2-year Treasury auction yesterday, market participants anticipated similar results from today's 5-year auction. Stable yields throughout the session, following a sharp flattening that inverted the 2s10s curve, bolstered these expectations, which were largely met.

The auction delivered a high yield of 4.197%, up from October's 4.138% and the highest since June. It stopped through the When-Issued (WI) yield of 4.199% by 0.2 basis points, marking the first non-tailing auction since June.

Demand remained strong, with a bid-to-cover ratio of 2.43, an improvement over last month's 2.39 and above the six-auction average of 2.38. This suggested solid interest in the offering overall.

Closer inspection of the auction's internals revealed a shift in buyer composition. Indirect bidders, largely foreign investors, took 64.12% of the total, a drop from 76.35% last month and the lowest share since February. Domestic direct bidders, however, increased their participation significantly, claiming 24.58%—the highest allocation for this group since July 2014. Consequently, primary dealers, typically the buyers of last resort, were left with just 11.3% of the auction, their lowest share since September 2023.

In summary, while the auction was respectable, it was not extraordinary. The results highlighted a shift toward stronger domestic demand amid declining foreign participation. Despite these internal dynamics, the auction had little impact on secondary market yields, leaving broader market conditions steady.