US Treasury's 10-year note auction posts 5.02% high yield, slightly weak grade

The US Treasury conducted a sale of $42 billion in 10-year notes:

• The high yield was set at 5.02%
• At auction time, the when-issued (WI) level stood at 5.01%
• There was a tail of +1.0 basis point, compared with an average of −0.6 basis points
• The bid-to-cover ratio came in at 2.46X, versus the average of 2.60X
• Direct bidders accounted for 29.0%, well above the average of 15.9%
• Indirect bidders took 61.2%, below the average of 76.65%
• Dealers received 9.8%, exceeding the average of 7.45%

The auction received a grade of D+.

It was somewhat weak overall. The high yield exceeded the WI level by 1.0 basis point, while the average typically shows a stop-through of 0.6 basis points. The bid-to-cover ratio declined to 2.46X from the 2.60X norm, and dealers ended up with a larger allocation than usual. Strong direct-bidder participation at 29.0% (average 15.9%) was a positive, but this was offset by the tail, the lower bid-to-cover, and the higher dealer takedown.