Treasury 5-Year Auction, B: Santelli

Treasury Seal
Treasury Seal

Wednesday’s $40 billion 5-year Treasury note auction deserves a solid B.

Why? The bid-to-cover ratio at 2.71 percent came in a lot higher than the 10-auction average of 2.57. That's the good part.

But I wasn’t crazy about the auction’s 2.13 percent yield, because when the note was trading in the WI (when issued) market it didn't trade above 2.11 percent.

The indirect bids came in lower, too, at 40.6 percent, which was below the average of 48 percent.

Again, those direct bids, those anonymous bidders, accounted for 15 percent, almost double the average for directs, which is 8 percent. This strong showing in direct bids, a running theme at this point, representing a sizable chunk of the bidding process.

So why are the direct bidders important? Are they recycling easy money in Treasurys?

No one knows who the direct bidders are, although theories exist about their possible identity—countries, private equity firms or hedge funds.

These direct bidders showed up again for Wednesday’s Treasury auction, as they have reliably in recent auctions, including during Tuesday's $42 billion 2-year Treasury note auction.

The Treasury auction set for Thursday is on a 7-year $31 billion note.