Auction of 10-Year Debt Sees Strong Reception, Pulls Rates Lower

Treasury Secretary Scott Bessent speaks to reporters in late June. (Al Drago/Getty Images)

The auction of 10-year U.S. government debt drew strong demand from domestic buyers on Wednesday, easing a jittery market.

The Treasury sold $39 billion of 10-year notes in the early afternoon. Investors accepted a yield of 4.362% on the 10-year note, about 0.4 basis points below the yield before the bidding deadline. That means investors bought all the notes on offer, even at a lower rate. Basis points are hundredths of a percentage point.

Direct bidders, typically those buying for their own accounts, came in strong, claiming 23.7% of the supply on offer versus the average of 15.4% seen over the past six such auctions, according to statistics listed by BMO Capital Markets. This was the highest since 2014.

Indirect bidders, which include foreign central banks, bought 65.4%, less than the norm of 72.5%.

The overall strength of the auction has led to yields on the 10-year moving to session lows of 4.356%. That is good news for existing bondholders as the price of their bonds rises. (Bond yields move in the opposite direction of prices.)

The Treasury Department routinely sells debt to fund various government operations. However, auctions have come under increased scrutiny since April. Investors have worried that the trillions of dollars in national debt and President Donald Trump’s aggressive trade policies could cause decreased demand for U.S. Treasuries.

Weak demand at the 3-year Treasury auction on Tuesday and the falling price of 10-year debt made today’s auction more noteworthy. The price of 10-year debt settled lower each trading day in July, while yields moved up.

There is no evidence so far of a shift away from U.S. Treasuries. Since March, the Treasury market hasn’t seen a single 10-year auction that has been dismal.

The Treasury will auction 30-year debt on Thursday. In May and March, demand for the 30-year was poor.

It doesn’t help that politics and fiscal concerns are pushing up long-end rates in other parts of the world. Japan’s 30-year yields surged above 3% on Tuesday, while 30-year U.K. bonds sold off last week.

“Structural forces not in favour of longer-dated bonds,” wrote Padhraic Garvey, the regional head of research for the Americas at ING, in a note this morning. He called the 30-year auction “arguably” more telling, as that’s where the pain point has been in global bonds recently.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com