The high yield during the auction was 1.484%, matching the when-issued yield before the auction. In bond market parlance, this means the auction finished right "on the screws."
The bid-to-cover ratio, which measures the dollar amount of bids versus the dollar amount of bonds actually auctioned, came in at 2.45, down from 2.79 at the May auction – marking the weakest demand for 5-year notes since September 2009.
Direct bidders, those who bypass Wall Street primary dealers and buy notes directly from the Treasury, only accounted for 4% of today's take, the lowest share taken by directs since November 2009.
53% of the notes at today's auction were awarded to indirect bidders, a group of investors that includes foreign central banks. That marks the highest share of a 5-year note auction going to indirect bidders since January 2010.
Today's auction of 5-year notes is closely watched by traders because the 5-year is part of the "belly" of the yield curve that makes up the largest portion of the Federal Reserve's balance sheet. Fears that the Fed will begin to taper bond purchases later this year have hit 5-year notes especially hard relative to Treasuries of other maturities.
"5-year notes and 7-year notes look pretty attractive here," said Brean Capital Head of Rates Russ Certo prior to the announcement of the auction results. "They've been bludgeoned, they've been the face of convexity and mortgage liquidation, as well as redemptions, and that's the area of value if you were going to have a tactical transaction in the marketplace."
The reaction in the bond market is fairly muted so far, but 5-year and 10-year Treasury futures are drifting higher following the announcement of the results of today's auction.
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