The 2-year: soft demand
The 2-year note cleared at a yield of 4.708% amid lackluster demand. Indirect bidders, a category that includes foreign central banks and other international participants, took just 45.7% of the supply, down sharply from 57.7% at the previous auction. That pullback suggests foreign buyers were hesitant to commit ahead of this week’s Federal Reserve policy decision. (1)
The 5-year: solid demand
The 5-year auction was a different story. The note cleared at 4.845%, well below 5.033% at the previous 5-year sale, (1) and the buyer breakdown pointed to a healthy appetite:
- Indirect bidders took 60% of the supply, up from 54% previously. These buyers place their orders through an intermediary rather than bidding directly, and the group is typically made up of foreign central banks, international monetary authorities, foreign governments, and other large global institutions.
- Direct bidders took 29.4%. These are institutions that bid directly with the Treasury for their own portfolios, including large asset managers, hedge funds, pension funds, mutual funds, insurance companies, and non-primary dealer banks.
- Primary dealers took 10.6%, below recent averages. Primary dealers are the select group of banks and securities firms authorized to trade directly with the Federal Reserve Bank of New York. They are expected to absorb whatever the market doesn’t, so a small share left to them is a good sign: real investors took down most of the supply.
Taken together, the 5-year results point to steady investment appetite in this part of the curve ahead of the Fed’s decision.
What about the 10-year?
There wasn’t a 10-year auction this week, but the benchmark is worth a look. The 10-year has been hovering around 5.03%, having eased from a multidecade high of 5.365% earlier this month.
The bottom line
Demand is there, but it’s selective, and buyers are picking their spots. With yields still sitting at levels we haven’t seen in years and the Treasury’s quarterly refunding announcement coming on November 4, the market is clearly weighing how much supply it can absorb. For investors who have been waiting on the sidelines, auctions like these are a reminder that real money is already putting capital to work at these levels.
