AUCTION PREVIEW: US to sell USD 38bln of 5-year notes on Tuesday at 1800 BST/1300 EST

The US Treasury will auction USD 93bln in 2s (USD 37bln on Monday), 5s (USD 38bln on Tuesday) and 7s (USD 31bln on Thursday); with USD 13bln maturing at the end of the week. The US will also sell USD 17bln of 2yr FRN this week. This week brings approx. USD 93bln of redemptions and approx. USD 8bln of coupon payments. Monday’s 2-year auction saw weak cover, with the Fed expected to lift rates by 25bps on Thursday, and analysts suggest that some of this sentiment may also be on view at the 5-year auction. Analysts at Societe Generale argue that the current 5-year note is trading rich on the spline compared to older 5s, but the sector has seen some cheapening on the curve after hitting its richest levels since last September against 2s and 10s, which SocGen suggests could be a positive for the auction. “The recent sell-off has pushed 5-year yields towards the cheapest the sector has been since 2008 and more than 18bps cheaper than the August auction result,” and adds that it holds a slightly positive bias going into the auction, though notes the risks of a small tail.

High Yield % (Prev. 2.765%)  Bid to Cover x (Prev. 2.49x, 6 auction avg. 2.53x) Dealers % (Prev. 26%, 6 auction avg. 30%) Directs % (Prev. 63%, 6 auction avg. 58%) Indirects % (Prev. 2%, 6 auction avg. 2%) (Newswires)