Strong 5Y Auction Stops On The Screws Ahead Of An FOMC Meeting Nobody Is Afraid Of

Ahead of today's auction, there was the usual split among rates traders, with half saying the auction should tail due to today's drop in yields and due to the risk of tomorrow's FOMC meeting, and the other half expecting a stop through thanks to today's general risk off sentiment. Well, both were wrong because moments ago the Treasury announced that today's $61 billion sale of 5Y bonds priced on the screws, with the high yield of 0.71% right on top of the When Issued. It was also the lowest yield for a 5 year auction since February.

The Bid to Cover of 2.36 was unchanged from last month and also right on top of the recent average (2.35).

The internals were also virtually unchanged from last month, with Indirects taking down 58.1%, up fractionally from 57.6% last month, and with Directs taking down 17.7% (vs 18.1% in June), Dealers were left holding 24.2% of the auction, also almost identical to last month's 24.3%.

Overall, it may not have been as strong as yesterday's 2Y auction but there was enough demand for 5Y paper to suggest that virtually nobody is worried about a major hawkish surprise tomorrow from Powell & Co.

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