Bond Market Update

Auction Reaction

• U.S. Treasuries have climbed off session lows that were reached about two hours ago, but most tenors remain in the red while the 5-yr note has returned to its flat line, making for a continuation of today's outperformance. The market is holding near its rebound highs even though the just-completed $44 bln 7-yr note sale met soft demand, as the high yield (3.770%) tailed the when-issued yield by 0.9 basis points while the bid-to-cover ratio (2.50x) was below average (2.56x). Foreign demand remained strong, however, as indirect takedown (75.1%) was comfortably above the prior 12-auction average (68.6%). The 7-yr note sale makes for an unimpressive finish to this week's note auction slate that started with a strong 2-yr note offering on Tuesday. On a side note, Fitch affirmed the AA+ rating for the United States with a Stable outlook.
• Yield Check:
  • 2-yr: +2 bps to 3.89%
  • 3-yr: +3 bps to 3.76%
  • 5-yr: +1 bp to 3.67%
  • 10-yr: +3 bps to 3.87%
  • 30-yr: +2 bps to 4.15%