At the time of the dismissal controversy surrounding Federal Reserve Governor Cook, the 5-year U.S. Treasury bond auction was disappointing
The winning bid rate for this 5-year U.S. Treasury auction was 3.724%, which, although lower than July's 3.983%, marked the third consecutive occurrence of tail-end spreads, indicating weak demand. The subscription ratio from overseas investors was significantly below the recent average, while domestic demand in the U.S. reached a record high. Analysts stated that the overall auction was disappointing, but some details still showed highlights
After the impressive and explosive 2-year U.S. Treasury auction yesterday, on Wednesday local time, the U.S. Treasury auctioned $70 billion in 5-year government bonds, with results that were much less favorable.
The winning yield for this 5-year U.S. Treasury auction was 3.724%, lower than July's 3.983%, and the lowest level since last year's 3.519% in September. The winning yield was 0.7 basis points higher than the pre-issue yield of 3.717%, marking the third consecutive occurrence of tail risk, indicating weak demand.
The bid-to-cover ratio for this auction was 2.36, an improvement from last month's poor 2.31, but still below the average of the last six auctions at 2.37.
The market's main focus was on the internal data of the auction:
The indirect bid ratio was 60.5%, up from last month's 58.3%, but still significantly below the recent average of 69.3%. Indirect bidders typically include foreign central banks and other institutions participating through primary dealers or brokers, serving as an indicator of overseas demand.
Weak overseas demand was offset by a surge in domestic demand, with the direct bidder subscription ratio reaching a historic high of 30.7%. Direct bidders include hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, serving as an indicator of U.S. domestic demand.
As the "buyers of last resort" for all unsold supply, primary dealers received an allocation ratio of 8.8%, matching the historical low level from January 2023.
Financial blog Zerohedge commented that although the overall auction was disappointing, some highlights could still be seen in the details. However, the market did not react much to this, and after the auction, the yield on the 10-year U.S. Treasury fell to its lowest point of the day.
Currently, the market is highly focused on Trump's firing of Federal Reserve Governor Cook. Trump stated that he would soon have a "majority" of members on the Federal Reserve Board appointed by him, who would support his willingness to significantly lower interest rates. However, recently, the U.S. Treasury market has shown signs of distortion and steepening, with long-end yields rising and short-end real yields falling, indicating that the threat to the independence of the Federal Reserve will raise inflation expectations and risk premiums
