A U.S. Treasury auction of $39 billion in benchmark 10-year notes saw solid investor demand on Wednesday, despite concerns over a bond market sell-off triggered by the escalating trade war between the U.S. and its major trading partners, led by China.
The auction, priced at a high yield of 4.435%, came in better than expected, lower than the rate forecast at the bid deadline. After the auction, the 10-year yield stood at 4.38%, down from 4.466% just before the auction.
Despite the drop, the 10-year yield has surged by 37 basis points this week, positioning it for its largest weekly gain since June 2013.
The bid-to-cover ratio, a key measure of demand, was 2.67, the highest since December, significantly above the 2.53 average. Indirect bidders, which include foreign central banks, accounted for a record 87.9% of the bids, up from 67.4% last month. Dealer participation stood at 10.7%, lower than the 13.1% in the previous month.
Concerns over a potential trade conflict had been weighing on the market, with fears that escalating tariffs could dampen demand for U.S. Treasuries, traditionally seen as a safe haven. However, these concerns eased after U.S. President Donald Trump announced a 90-day pause on many of his newly imposed tariffs, though he increased tariffs on imports from China.
The 10-year Treasury auction result marked a positive note for the market in the short term, offering some relief after a week of weak bond market trading. Despite lingering uncertainties over the impact of tariffs on economic growth, the strong auction outcome provided a welcome boost to market sentiment.
In a separate auction on Tuesday, the U.S. Treasury sold $58 billion in three-year notes, which was less well-received. The three-year note auction “tailed,” with the note priced at 3.784%, slightly higher than market expectations, indicating investors demanded a premium to buy the shorter-term debt.
The U.S. Treasury is set to offer $22 billion in 30-year bonds on Thursday, with long-term bonds having been heavily sold off recently, driving their yields to the highest levels since November 2023. The 30-year bond yield was up 7.7 basis points at 4.791%.
