There is an old saying: “High prices will rapidly cure higher prices.” The same may be true about higher bond yields for Treasury notes and bonds. We have been tracking a rapid rise in intermediate and long-term Treasury rates and how they impact sectors of late, but a new five-year Treasury note auction had high enough of a yield that it brought in bidders into the auction.
What seems to have driven the auction was a 1% coupon, which went off at 1.045% for a yield at a price of $99.78133 per bond. That was the highest five-year auction yield in about 18 months.
Stock investors have been hitting the sell button to lock in profits. It seems as though the higher bond yields may actually be curing higher bond yields. Our take is still one of caution. Short of another financial crisis coming back up, it looks as though the great Treasury bond secular bull market may be coming to an end.
Read also: A How-To Guide to Shorting the Treasury Bond Bubble
The bid-to-cover ratio was a tad low at 2.79, but the auction looks far better than a very dismal two-year Treasury note auction from Tuesday that required the primary dealers to gobble up most of the offering. Of this five-year auction, the accepted bids were only about 33% from dealers. Indirect bidders, including Foreign and International Monetary Authorities, were about 44% of the accepted bids.
Bloomberg’s Treasury website shows that Treasury yields on the five-year note alone are up 33 basis points in just the last month. Covering the same period, the 10-year yield is up 47 basis points to 2.13% and the 30-year yield is up 39 basis points to 3.29%.
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