Auction Preview: US to sell USD 70bln of 5-year notes at 17:00GMT/13:00EDT

5-Year Auction History

• High Yield: (prev. 3.615%, six-auction avg. 3.680%)
• Tail: (prev. 0.7bps, six-auction avg. 0.3bps)
• Bid-to-Cover: (prev. 2.32x, six-auction avg. 2.36x)
• Dealers: (prev. 12.8%, six-auction avg. 10.8%)
• Directs: (prev. 24.7%, six-auction avg. 27.5%)
• Indirects: (prev. 62.5%, six-auction avg. 61.7%)

Preview:

Overall, the combination of weak recent front-end auctions, elevated volatility, and geopolitical uncertainty may point to softer demand at today’s 5-year auction. However, with yields at their highest level since August 2025, the sector may still attract support from money market funds seeking to lock in higher yields, while private credit concerns could further underpin demand. Given the improvement in demand further out the curve in recent supply, the 5-year may see a relative step-up versus the 2- and 3-year auctions, though perhaps not to the extent seen in the longer-end issuance.

The 5-year yield has surged in response to the US-Iran conflict, currently trading around 3.99% vs a pre-war level of 3.48%. Although yields are off the war peak of 4.15%, it remains above the February auction high yield of 3.615% and the six-auction average of 3.680%.

Recent front-end auctions have been notably weak, raising risks for today’s 5-year sale. The 2-year auction earlier this week was one of the weakest in recent history, while the 3-year earlier in the month also saw soft demand. Both auctions were characterised by a sharp drop in direct bidding, suggesting real money accounts have largely remained sidelined amid elevated volatility tied to the ongoing Middle East conflict. In contrast, indirect demand — a proxy for foreign participation — has remained relatively stable.

While the 5-year sits in the belly of the curve, rather than the front-end, it remains exposed to volatility driven by oil price swings and the hawkish shift in Fed expectations. Although higher yields could help attract demand, recent volatility has weighed on participation in shorter-dated supply, and similar dynamics may persist today. March’s auctions have been mixed overall, with the weakest demand seen along the front-end, with improved participation seen further out the curve.

Bond market volatility remains elevated, with the MOVE index currently above 100, compared to around 78 at the time of the 10th March 3-year sale, and 63 at the time of the February 5-year auction. The index peaked at 109 earlier this week, the highest level since June 2025, reflecting ongoing uncertainty tied to geopolitical developments.

The latest headlines suggest that the US has proposed a one-month ceasefire plan to Iran, and follows earlier optimism from President Trump on the prospects of a near-term deal. However, conflicting reports from Iran and continued tensions highlight the fluid nature of the situation; Fars News, for instance, said Iran has not accepted the ceasefire proposal, maintaining a volatile backdrop for markets.

Meanwhile, private credit concerns continue to linger, with Ares (ARES) and Apollo (APO) limiting fund withdrawals earlier in the week. This may encourage a rotation into safer and more liquid assets, like Treasuries.