The U.S. government on Wednesday sold a record $42B of 10-year notes at a lower-than-expected yield, signaling strong investor demand despite the auction’s large size.
The notes were awarded at 4.093%, below the ~4.290% average yield over the past six auctions where new 10-year notes were issued.
“So far, the increased auction sizes for this quarterly refunding round have seen solid metrics in the 3Y and 10Y sales,” said ING rates strategists. “The 10Y auction was very fine… The indirect bid (typically from large, and from offshore players) was impressive at 71%. No supply hiccup here.”
The Treasury’s quarterly debt refunding will be completed on Thursday with the auction of $25B of 30-year bonds, which analysts believe is the bigger test, as it’s longer in interest rate risk.
“With no 30-year tenor maturing this quarter and the supply of Treasuries overcoming maturities by a significant amount, demand for this week’s 30-year auction will rely entirely on investors seeking to extend their portfolio’s duration,” said Althea Spinozzi, head of fixed income strategy, Saxo. “A poor 30-year auction might reignite the bear-steepening of the yield curve.”
See how Treasury yields have done across the curve at the Seeking Alpha bond page.