US Treasury Secretary Janet Yellen is very happy.
Today’s 2-year Treasury auction marked a historic event as the Treasury sold a record-breaking $63 billion worth of 2-year paper.
Despite the anticipation surrounding this significant auction, the results were met with challenges.
The high yield of 4.691% surpassed the previous month’s by 32.6 basis points and slightly deviated from the expected 4.689%. This indicates that investors are demanding higher yields to offset perceived risk in the financial system.
Moreover, the bid-to-cover ratio, a measure of demand, dropped to 2.492 compared to the previous month’s 2.571, representing its lowest level since March 2023.
Indirect bidders (foreign purchasers) accounted for 65.2% of the purchases, maintaining a steady participation rate similar to the previous month’s 65.3% and surpassing the six-auction average of 62.8%.
Direct bidders (US purchasers) took up 20.1% of the auction, the highest since November, leaving dealers with 14.73%, the lowest since September.
This subpar auction outcome, while somewhat expected with the record size, had immediate ripple effects on the market.
The swift market response was evident as yields rose across the curve, with the 10-year yield reaching session highs of 4.29% shortly after the auction.