Ugly 7Y Auction Tails, Sees Lowest Bid To Cover In Over A Year

A stellar 2Y, a solid 5Y and a dismal 7Y auction: that about sums up this week’s coupon issuance. 

Moments ago, the US treasury completed the week’s final auction when it sold $44 billion in 7Y paper in what was an ugly auction. 

Starting at the top, the high yield was 3.925%, the first sub-4% coupon auction since last September. It also tailed the When Issued 3.922% by 0.3bps, the first tail since April and quite a reversal to last month’s record-matching stop through. 

The bid to cover was ugly: at 2.489, it was a big drop from last month’s 2.787 and the lowest since May 2024. 

The internals were a bit odd: while foreign buyers took down 77.45%, or one of the highest on record, Directs were nowhere to be found, and after last month’s 33.7% award, they ended up with just about a third of the total, or 12.8%. That left Dealers holding 9.8%, or more than double the record low 4.1% from last month.

Overall, this was a poor auction yet the odd surge in Indirects somewhat offsets the deterioration from last month, even if it is largely due to Directs pulling back sharply. And just like yesterday, the market did not care for the results, with yields across the curve trading to session lows after the break on the back of the latest slump in the USD.