10-Year Treasury Stabilizes After Auction, Ahead of FOMC Minutes

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The U.S. Treasury just held a 10-year Treasury Note auction, and this was going to be a highly watched auction. After all, U.S. interest rates have ticked higher almost daily now to the point that 10-year Treasury yield is challenging the 1.80% mark. The coupon on the Treasury note was a mere 1.50%, going off at a yield of 1.793%.

As far as how the auction went, demand was considered average with $45.356 billion bid for the $20 billion sold. Perhaps after the back-up we have seen in rates, even average or mediocre demand may have to be good enough. It was also an auction with results due ahead of the FOMC’s minutes of the last meeting, and it is no secret that three of the ten FOMC officials were voting to raise interest rates.

The 10-year’s bid-to-cover ratio, the demand ratio, was 2.53 — more or less in-line with the most recent 10-year sales. Indirect bidding was a tad light at 62.7%, but that is foreign demand (including foreign central banks).

Direct bidding was only 6.6%. This is light by almost all measurements and versus prior and recent auctions, but again most firms are expecting that another rate hike will come in December after we know who the next president will be. Many brokerage firms may have not wanted to take on more longer-dated yields than they had to.

Investors have been hearing more rumblings that bond yields are being kept artificially low and that a bubble has formed in the bond market. This has yet to be proven, but Merrill Lynch just this week opined about higher inflation coming down the pipe in 2017.

After hitting a high yield of 1.80% on Wednesday, the 10-year Treasury yield was last seen trading at 1.788%.

A larger sized $24 billion auction had been seen earlier on Wednesday for a 3-year Treasury note.