US Treasury 10-year note auction outcome shows strong demand

NEW YORK – A US Treasury debt auction of USD 39 billion in benchmark 10-year notes was well received on Wednesday, showing solid investor demand even after a bond market sell-off driven by an escalating trade war between the United States and its major trading partners led by China.

The US Treasury’s auction came in better than expected, priced at a high yield of 4.435%, lower than the rate forecast at the bid deadline.

After the auction, the 10-year yield was last at 4.38% UIS10YT=RR, down from 4.466% just before the 1300 EDT auction. That said, the 10-year has risen sharply this week by 37 basis points, on track for its largest weekly gain since June 2013.

“The 10-year Treasury auction went better than expected certainly against a backdrop where the bond market had been trading very weakly over the course of the last week,” said Jeffrey Palma, head of multi-asset solutions and macro research, at Cohen Steers in New York.

“That strong result, at least in the short run, is a positive for sentiment. The longer-term questions still remain around the impact from tariffs and so forth on growth. But at least for the short run it’s a bit of welcome good news against what has been a tough backdrop.”

The auction statistics were robust across the board.

The bid-to-cover ratio, another gauge of demand, was 2.67, the highest since December, solidly above the 2.53 average.

Indirect bidders, which include foreign central banks, took up a record 87.9% of the bids, up from 67.4% last month.

Dealer participation was at 10.7%, lower than the 13.1% in the previous month and the 14.5% average. High dealer participation in Treasury auctions suggests a lack of interest from other investors, meaning dealers had to step in to absorb the note.

Investors have been worried about the prospect of a major trade conflict, which has sparked worries about demand for what is supposed to be a global safe haven.

Those fears may have eased for now after US President Donald Trump on Wednesday said he would pause many of his new tariffs for 90 days, even as he raised them further on imports from China.

On Tuesday, the US Treasury sold USD 58 billion in three-year notes, and it was poorly received by the market. The note was priced at 3.784%, higher by over 2 bps than what the market indicated, suggesting investors demanded a premium to buy the three-year debt. In bond market parlance, the three-year note auction “tailed”.

Last month’s 10-year note auction came in within expectations as well, with end-user demand stable. The bid-to-cover ratio, another gauge of demand, was 2.59, the highest since December.

Wells Fargo had earlier pointed out in a research note that 10-year note auctions in April usually tend to be weak.

The last five 10-year reopening auctions had been softer than anticipated, with the largest tail in 2024 at 3.1 bps. The average tail over the last five years was 1.8 bps, Wells Fargo wrote.

On Thursday, the US Treasury will sell the last supply for the week: USD 22 billion in 30-year bonds US30YT=RR. The long-term bond has been massively sold off in the cash market, pushing their yields to the highest since November 2023. The 30-year bond yield was last up 7.7 bps at 4.791%.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Sinead Carew; Editing by Megan Davies and Chizu Nomiyama)