Similar to yesterday's sale of 2Y paper, moments ago the Treasury sold $39 billion in 5Y paper at a high yield of 2.977%, below last month's 2.997%, and tailing the When Issued 2.971% by 0.6 bps.

The bid to cover dropped from 2.39 in September to just 2.30, below the 6 auction average of 2.51 and the lowest since February 2017.

But it was the internals were the biggest similarity to yesterday's auction was found, because for the second day in a row, Direct Bidders were engaged in a full-blown boycott, tendering only $2.227BN in bids, and were hit on only $727MM, a takedown of only 1.9%, which was the lowest since July 2009. It is unclear what has spooked Direct bidders so much but whatever it is, it continues.

Meanwhile, Indirects took down 59.0% of the auction, which while above last month's 57.9% was below the six auction average of 61.6%. Dealers were left with 39.1% of the allotment, a sharp increase from the 28.3% recorded in the prior 6 auctions.

Overall, not a bad auction but the collapse in Direct demand is perplexing and if it continues, may be an indication that a key buyer group for Treasury paper may have left the building.