US treasury auctions off $69 billion of two-year notes 3.955%

• High yield 3.955%
• WI level at the time of the auction 3.965%.
• Tail -1.0 basis points versus six-month average of -0.4 basis points.
• Bid to cover 2.57X vs average of 2.65X
• Directs 26.2% versus six-month average of 16.4%
• Indirects 63.3% versus six-month average of 72.7%
• Dealers 10.5% versus six-month average of 10.9%

Auction Grade: B-

Positive Factors:

• High Yield vs. WI (When-Issued):
  The high yield came in 3.955%, which is 1.0 basis point better than the WI level of 3.965%. That’s a negative tail (i.e., the yield was lower than expected), and better than the 6-month average tail of -0.4 bps.
  ✅ Positive signal of stronger-than-expected demand.

• Direct Bidders:
  Awarded 26.2%, significantly above the six-month average of 16.4%.
  ✅ Shows strong appetite from domestic buyers, often viewed as “real money” participants.

Neutral to Slightly Negative Factors:

• Bid-to-Cover Ratio:
  Came in at 2.57x, below the 6-month average of 2.65x.
  ❌ Suggests slightly weaker overall demand in terms of total bids per amount offered.

• Indirect Bidders (Foreign/Central Banks):
  Awarded 63.3%, lower than the 72.7% average.
  ❌ Could point to weaker foreign demand

• Dealer Takedown:
  10.5%, close to the 10.9% average.
  ⚖️ Roughly in line, not a major driver either way.

Why not higher than a B?

While the strong tail and direct bidder interest are definite positives, the lower bid-to-cover and drop in indirect interest indicate a less broad-based appeal. For an “A” auction, we’d expect above-average demand across all major bidder categories and a strong bid-to-cover.

Conclusion:
Strong pricing and healthy direct interest, but only modest demand overall—a B-

This article was written by Greg Michalowski at www.forexlive.com.