First Weak 10-Year Auction in Months Briefly Boosts Yields

The government has a lot of debt to finance. The Treasury Department building in Washington, DC. (ALASTAIR PIKE / AFP / Getty Images)

A 10-year Treasury note auction on Wednesday faced lackluster demand for the first time since February as investors sought more yield to lend to the U.S. government.

The Treasury sold $42 billion in 10-year debt at 4.255%, which was nearly one basis points above the yield seen in the pre-bidding deadline. Higher rates at auctions signal that demand is weak, as the Treasury has to entice investors to buy U.S. debt. One basis point (bp) is equal to 0.01%.

Perhaps the most compelling stat was the supply of debt absorbed by primary dealers, or banks and institutions that are obligated to buy up debt in all Treasury auctions. This group had to buy up 16.2% of the supply, the most in a year.

Shortly after the auction results, the 10-year yields trading in the market pushed higher to 4.25% from 4.231% earlier, but have been inching lower since.

Yields rose in response to weak auctions, and this is the first one following five consecutive strong 10-year auctions this year. Higher yields means prices of Treasuries are falling, a bad outcome for existing holders.

The auction of 3-year notes was also weak on Tuesday. The Treasury Department routinely auctions debt, but 10-year notes get the most attention. They serve as the basis for rates on debt across the world, including credit cards and mortgages.

The auction was weak likely because 10-year yields have fallen considerably over the past four days, and investors weren’t willing to gobble up debt at current rates. Last month, investors got 4.362% on their 10-year debt. In the two months prior, investors received 4.421% and 4.342%, respectively. That likely pushed investors to demand higher yields than the roughly 4.255% offered to them at this auction.

Investors have been paying attention to 10-year auctions to sniff out signals of a buyers’ strike, especially from foreign nations dealing with the pain of President Donald Trump’s tariffs. Demand so far from foreign buyers for U.S. debt has been adequate.

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