Auction Preview: US To sell USD 44bln of 7-year notes at 17:00GMT/13:00EDT

• High Yield: (prev. 3.790%, six-auction avg. 3.877%)
• Tail: (prev. 0.0bps, six-auction avg. 0.4bps)
• Bid-to-Cover: (prev. 2.50x, six-auction avg. 2.46x)
• Dealers: (prev. 10.4%, six-auction avg. 11.5%)
• Directs: (prev. 26.0%, six-auction avg. 28.3%)
• Indirects: (prev. 63.6%, six-auction avg. 60.3%)

Despite higher yields on offer, risks remain skewed towards a softer auction, in line with recent supply across the curve. However, demand has improved further out the curve, suggesting today’s 7-year may perform somewhere between the softer 5-year and stronger longer-end auctions, rather than the notably weak 2- and 3-year sales.

The 7-year yield is currently around 4.214%, just below the conflict peak of 4.28%, but still near the highest levels since August 2025. This remains well above February’s auction high yield of 3.790% and the six-auction average of 3.877%, which could help attract demand.

Recent auctions have shown a clear pattern, with sharp weakness in direct bidding at the front-end, suggesting real money accounts have remained sidelined amid elevated volatility, while indirect demand — a proxy for foreign participation — has remained broadly stable. The 5-year saw a more modest decline in direct demand, indicating some improvement in participation further out on the curve. A similar dynamic would not be surprising at today’s 7-year auction, given its position in the belly.

Volatility remains elevated, with the MOVE index currently around 97, below the peak of 109 seen earlier this week, but still at its highest level since June 2025, and well above levels seen at the February auction. While volatility has been most pronounced at the front-end due to energy-driven inflation concerns, the belly has also been influenced by shifting expectations around Fed policy.

Geopolitical developments continue to drive the macro backdrop, with ongoing negotiations between the US and Iran and uncertainty around the trajectory of the conflict maintaining elevated headline risk. The lack of clarity is likely to keep volatility elevated in the near term.