Stellar 10-year Treasury auction sees highest bid-to-cover ratio in a decade

The US Treasury just sold $39 billion in 10-year notes, and investors practically tripped over each other to buy them. The September 9 auction posted a bid-to-cover ratio of 2.71, meaning there were $2.71 in bids for every $1 of debt on offer. That’s the highest reading since April 2016.

The auction cleared at a high yield of 4.834%, a level the 10-year hasn’t touched since August 2007.

The numbers behind the blowout

Indirect bidders, a category that includes foreign central banks and international institutional investors, gobbled up 79.2% of the offering. Primary dealers took home just 4.3% of the total. When dealers get stuck with a small allocation, it’s a sign that real buyers wanted in. A high dealer takedown usually means weak demand. A 4.3% reading means the opposite.

The auction also “stopped through” the when-issued yield by 1.5 basis points. In plain terms, the final clearing yield came in lower than where the bonds had been trading in the secondary market right before the auction.

Why yields are this high in the first place

The 10-year yield ended the trading session around 4.837%, barely budging from the auction result.

The auction also came on the heels of a $6 billion bond buyback announcement from the Treasury, a tool the department has been using to manage liquidity in older, less-traded securities. Buybacks reduce outstanding supply of off-the-run bonds while the government simultaneously issues new on-the-run paper.

What this means for markets

The heavy foreign participation suggests that fears about a durable exodus from US government debt have been overstated, at least for now. A 79.2% indirect bid doesn’t support that narrative.

A risk-free return near 4.8% on a 10-year horizon makes bonds a legitimate competitor to equities for the first time in years.

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