The Treasury has successfully auctioned a record $42 billion 5 yr notes at a high yield of 2.175%, which is lower than the 1pm "When Issued" mid-market yield. The bid to cover ratio, a measure of demand, was 2.81 bids for every 1 accepted by the Treasury. Very strong demand.

Here is a recap of the auction results...

5-YEAR NOTES
 
YIELDS
    High                                 2.175 pct
    Median                            2.100 pct
    Low                                 1.940 pct

PRICE/ACCEPTANCES
    Price                               99.764325
    Accepted at high             67.34 pct
    Bid-to-cover ratio            2.81

AMOUNTS TENDERED AND ACCEPTED (dollars)

    Total accepted                                 42,000,072,500
    Total public bids tendered              118,040,288,500
    Competitive bids accepted             41,831,884,000
    Noncompetitive bids accepted      118,188,500
    Fed add-ons                                      1,261,222,600
    
    Primary Dealer Tendered                77,754,000,000
    Primary Dealer Accepted                 15,146,360,000
    Primary Dealer Hit Rate                   19.48% of what they bid on
    Primary Dealer Overall Awarded    36.06% of issuance

    Direct Bidder Tendered                    5,160,000,000
    Direct Bidder Accepted                     1,198,000,000
    Direct Bidder Hit Rate                        23.22%of what they bid on
    Direct Bidder Overall Awarded         2.99% of issuance


    Indirect Bidder Tendered                  34,958,100,000
    Indirect Bidder Accepted                   25,487,524,000
    Indirect Bidder Hit Rate                     72.91% of what they bid on
    Indirect Bidder Overall Awarded       60.68% of issuance

Indirect Bidders and Direct Bidders took home 63.67% of the auction. This suggests strong demand from real money accounts and less need to lean on the support of primary dealers.  Good auction....

 Here's how today' auction compares to previous auctions.

Following the release of the results, the FN 4.0 is trading +0-06 at 99-25 yielding 4.035% and the FN 4.5 is +0-05 at 102-05 yielding 4.236%. The secondary market current coupon is 4.042%. The CC yield is +70/10yr TSY and +60/10yr swap. Current coupon yield spreads are TIGHTER on the day as MBS are outperforming benchmark yields...STILL.

After going sideways in the GREEN for most of the day, "rate sheet influential" MBS coupons tested the high side of the morning range following the strong 5 yr note auction...

TSYs and MBS continue to grind to the right. While the rates market is well bid (there is support under the market), unless the 10yr manages to break 3.32% resistance, the FN 4.5 has likely hit a price ceiling. Profit taking is expected at these rich "rate sheet influential" MBS valuations....but we expect bargain buyers to add collateral (buy MBS) on weakness as we approach month/year end.

Next Event:  FOMC Minutes at 2pm