The lackluster auction of 10-year US Treasury bonds, coupled with low yields, has led to a lack of demand in the market, causing a widespread decline in US Treasury bonds and stocks
After the auction results were announced, on Wednesday, the yield on the 10-year US Treasury bond surged past the level before last Friday's non-farm payroll data was released. The spike in US Treasury yields also led to a decline in US stocks, wiping out all the gains from the dovish Bank of Japan overnight. Analysis indicates that a yield below 4% is not necessarily positive, raising the question of how the $25 billion 30-year US Treasury bond auction on Thursday will fare
On Wednesday local time, the US Treasury auctioned $42 billion in 10-year Treasury notes. Although the bid rate was significantly lower than in July, the auction was considered less than ideal based on other parameters, leading to a decline in US Treasuries and stocks.
The bid rate for this 10-year Treasury note auction was 3.960%, significantly lower than the 4.276% on July 10th, but with a tail spread of over 3 basis points, indicating weak demand.
The bid-to-cover ratio for this 10-year Treasury note was only 2.32, the lowest since December 2022, compared to 2.58 in July.
As a measure of domestic demand in the US, the allocation to Direct Bidders, including hedge funds, pension funds, mutual funds, insurance companies, banks, government entities, and individuals, was 16%, below the average level.
As a measure of foreign demand, the allocation to Indirect Bidders, typically foreign central banks and other institutions participating through primary dealers or brokers, was 66.2%, at a standard level.
Primary dealers, acting as "dealers of last resort" for all unsold supply, received an allocation of 17.9%, above the average level, indicating insufficient real demand.
Following the release of the results of the 10-year Treasury note auction, on Wednesday, the yield on the 10-year Treasury note surpassed the level before the release of last Friday's non-farm payroll data, leading to a spike in yields and a decline in US stocks, erasing all gains from the dovish Bank of Japan overnight.
Media analysis pointed out that a yield below 4% is not necessarily positive, raising the question of how the $25 billion 30-year Treasury bond auction on Thursday will fare.
Financial blog Zerohedge also mentioned comments from JPMorgan Chase CEO Jamie Dimon on the same day, expressing doubts about whether the inflation rate will return to 2%, and adding that a 50 basis point rate cut by the Federal Reserve may not be as significant as people imagine