* US five-year auction bid-to-cover is lowest since September 2022
* Primary dealers share hits highest since May 2024
* Auctions falter despite re-pricing of Fed rate policy
By Gertrude Chavez-Dreyfuss
NEW YORK, – For the second consecutive day, a U.S. Treasury sale met with lackluster demand, renewing doubts about investor appetite for government securities as the Iran war has driven up oil prices and inflation expectations. Wednesday’s $70 billion auction of five-year Treasuries posted some of the softest metrics in years, following Tuesday’s disappointing sale of two-year notes. The bid-to-cover ratio, a measure of investor demand, was 2.29X, lowest since September 2022.
Investors have been steadily selling Treasuries since the joint U.S.-Israeli strikes against Iran kicked off a conflict nearing four weeks in duration. Since the last auction in February, five-year yields have climbed 40 basis points, as the market has pared back expectations for interest-rate cuts this year as it has had to adjust for the possibility that elevated energy costs will stoke inflation as they did in 2022. The auction priced at 3.98%, higher than the rate expected at the bid deadline, indicating that investors demanded additional yield to absorb the supply.
“In this moment of acute geopolitical uncertainty, we’re seeing pretty elevated volatility in the Treasury market,” said Vail Hartman, U.S. rates strategist at BMO Capital Markets. “The auction results speak to the idea that even though valuations are compelling, it’s not enough for investors to bid aggressively in the current environment.”
Foreign participation at Treasury auctions, as a gauge of overseas demand for U.S. assets, has also been closely watched since the conflict began.
Indirect bids, which include foreign investors, were 61.9% of the total five-year issue, lower than in the February auction.
U.S. five-year Treasuries briefly sold off after the auction. The yield was last down 5.9 basis points at 3.969%.
Primary dealers took 15.6% of the total notes issued, highest since May 2024 and well above the 10% average. That indicates that those institutions, which trade directly with the U.S. Federal Reserve, had to backstop the auction because of weak demand. Tuesday’s two-year note sale of $69 billion had a dealer takedown rate of 24.1%, highest since October 2022. The bid-to-cover ratio for the two-year auction was 2.44X, lowest since May 2024.
Zachary Griffiths, head of investment-grade credit at CreditSights in Charlotte, North Carolina, noted that the last two days of results were a surprise given shorter- and intermediate-dated securities tend to benefit in uncertain environments.
“To see those notes getting shunned, even after a very dramatic repricing of central bank policy is a little concerning for me,” he said.
This article was generated from an automated news agency feed without modifications to text.
