US five-year notes bid/cover ratio 2.32 vs. 2.34 previous auction

US five-year notes bid/cover ratio 2.32 vs. 2.34 previous auction

US Five-Year Note Auction Shows Slightly Lower Demand in Latest Bid-to-Cover Ratio

The latest auction of US five-year notes recorded a bid-to-cover ratio of 2.32, a marginal decline from the previous auction's ratio of 2.34. This metric, which measures total bids received relative to the amount offered, remains within the historical range of 2.00 to 2.50 observed over the past decade. A ratio above 2.00 indicates sufficient demand to meet Treasury issuance needs, though the slight dip suggests a modest cooling in investor appetite compared to recent auctions.

Treasury auctions are critical for financing the federal budget deficit, which is projected to reach $2.0 trillion in fiscal year 2024—nearly 7% of GDP. Analysts monitor three key indicators to assess auction strength: bid-to-cover ratios, "tails" (differences between when-issued and auction yields), and primary dealer allocations. For the five-year note auction, the bid-to-cover ratio alone does not signal significant concern, as it remains well above the 2.00 threshold associated with weak demand.

Other indicators also provide context. For example, primary dealer allocations—often a sign of soft demand if unusually high— have stabilized around 15% in recent auctions, below the longer-term average. Meanwhile, the "tail" for the five-year note was not explicitly reported, but similar securities, such as 10-year notes, have shown tails of 1–3 basis points in 2024, reflecting normal volatility rather than a systemic trend.

While the bid-to-cover ratio's slight decline warrants monitoring, experts note that isolated fluctuations are common and do not necessarily indicate broader market dysfunction. Historical patterns suggest continued confidence in US debt as a safe-haven asset. However, persistent weakness in auction metrics could amplify market volatility and increase borrowing costs for the federal government.

Investors and policymakers will continue to watch auction results closely as Treasury issuance ramps up to fund the deficit, with an eye on whether current trends evolve into more pronounced shifts in demand.

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Thornburg Capital, (September 2024)