With markets particularly sensitive to US yields, the US treasury will resume the auction calendar this week with the sale of $44 billion and 5 year notes at the top of the hour (they sold 2 year notes yesterday and will sell 7 year notes tomorrow).
The key 6 month averages of the key components will determine success or failure. If there is a decent auction, it has generally been because of strong international demand as investors (the indirect bidding) take advantage of the higher US rates and safety.
Some of the key 6 month averages for the 5 year auction shows:
- Bid to cover, 2.40X
- Directs (a measure of domestic demand), 19.0%
- Indirects (a measure of international demand), 61.9%
- Dealers (the US primary dealers take the balance of the auction), 19.1%
- Tail (the difference between the WI yield that the time of the auction and the high yield of the auction), +0.6 basis points
The last auction yield came in at 3.23%. The current 5 year yield is trading at 4.19% well above the average from last month. Will the demand show up?