The US Treasury recently auctioned $39 billion of 10-year notes, achieving a high yield of 4.173%, slightly up from the previous 4.169%. At the time of the auction, the when-issued (WI) yield stood at 4.181%.

The auction displayed robust demand and a smooth operation. The final yield cut through the WI level by 0.7 basis points, indicating that buyers were willing to accept a marginally lower yield than anticipated before the sale. This 0.7 basis point tail compares favourably to the six-month average tail of 0.1 basis points.

The bid-to-cover ratio was 2.55, just above the six-month average of 2.51, reflecting broad market participation. Notably, direct bidders accounted for 24.5% of the auction, up from the six-month average of 20.6%, signalling strong domestic real-money interest, particularly from pension funds and asset managers.

Foreign investors maintained steady demand, taking 69.6% of the issue, consistent with the six-month average of 69.5%. Dealers absorbed only 5.9% of the auction, significantly lower than the six-month average of 9.9%, suggesting that the market itself effectively absorbed the supply without dealers needing to warehouse significant amounts of bonds.

Overall, the auction received a grade of B+, reflecting a healthy and well-supported result. The strong demand and clean absorption of supply help explain why 10-year Treasury yields did not rise further following the sale.

Original Source: Greg Michalowski of investinglive.com