- 3.747% prior
- Bid to cover 2.34 vs 2.35 prior
Here was a preview from BMO:
Today's $70 bn 5-year auction comes after the strong reception to yesterday's 2-year offering, which stopped-through by 1.5 bp with aggressive end-user bidding. With every nominal coupon auction stopping through so far in 2026, it's become increasingly difficult to imagine that investors will require much of a concession for the new 5-year issue. In terms of valuations, there is a solid local concession with 5-year rates in the top quartile of the multi-month range. In fact, with WI 5-year yields trading at 3.81%, it is expected to be the highest yielding 5-year auction since July 2025. On top of the outright discount, valuations also look compelling on the curve. 5s/30s has flattened 15 bp over the last three weeks, and the 2s/5s/10s cash butterfly is at its cheapest levels since April 2025. To be sure, investors will need to contend with a variety of key near-term event risks – including the FOMC meeting and Trump's announcement of the new Fed Chair. Despite this, we suspect that valuations are sufficient to result in a modest stop-through at 1pm ET.
This is a soft result at a time of year that's typically strong for bond auctions. That said, the margins are very small and this isn't going to filter into broader markets.
Fixed income is in an interesting spot right now. We're seeing accelerating inflation in Australia and Japan while all the candidates for the Fed job (and the Fed itself) continue to insist that lower inflation is coming. Today's housing price data was hot, potentially reversing one of the big drags on US prices. Oil prices are also up 2.3%, reversing another big drag over the past year or so.
I highlighted earlier this week that consumers are going to be getting large tax refunds this year and that money is going to flow right into spending, which is another potential upside risks for prices. Are we sure the Fed should be cutting rates? If not, then 5s need to be above 4%.
