March 25 (Reuters) - The U.S. Treasury’s $62 billion auction of seven-year notes on Thursday outperformed last month’s dismal showing, but still showed signs of the market’s struggle to absorb the enormous amount of issuance in the belly of the maturity curve to finance pandemic relief.
Weak demand last month for debt in that maturity accelerated a selloff in Treasuries and focused market attention on auctions this month.
The notes were sold on Thursday at a high yield of 1.3% - 2.5 basis points above the market at the bidding deadline, “which is generally not a great sign and a pretty big tail,” according to Zachary Griffiths, macro strategist at Wells Fargo.
Still, he noted that some of the other metrics “weren’t nearly as bad” and the seven-year yield was trading below the auction yield.
The bid-to-cover ratio, a gauge of demand, was 2.23, up from February’s record-low 2.04 ratio. Direct bidders took 18% of the sale.
It followed other auctions this week with $60 billion of two-year notes drawing solid demand on Tuesday and $61 billion of five-year notes performing slightly better than average on Wednesday.
“This week of auctions in general probably calmed things down at the margin, but I think auctions will continue to be in focus going forward,” Griffiths said. “They will definitely be a gauge of where demand is as yields have risen, but supply is going to remain very heavy in the coupon sector this year.”
Reporting By Karen Pierog; Editing by Alden Bentley and Andrea Ricci