Solid Demand at 10-year U.S. Treasury Bond Auction Following CPI Report

US Treasuries trade near their best levels of the day, with little reaction to the completed $35 bln 10-yr note sale which met solid demand just under yesterday’s stellar 3-yr note sale. Today’s reopening drew a high yield of 3.448%, tailing the when-issued yield by 0.9 bps basis points. The bid-to-cover ratio (2.45x) and indirect takedown (67.5%) were a bit above average. Notably yesterday’s $40 bln 3-yr note sale found stronger interest, the shorter date in line with the bond market risk profile. The desk gave a B+ rating on the auction. Equities are mixed with the S&P 500 (-0.1%) while the Nasdaq (+0.5%) outperforms.

Earlier today we heard annual inflation cooled for the ninth straight month on a year-over-year basis, total CPI was up 4.9%, its lowest level since April 2021, just below last months, and expected 5 per cent. However, core-CPI only dipped slightly to 5.5% year on year, barely moving since the end of last year.

The bid to cover 2.45X vs. 12-month average of 2.41X, indirect takedown 67.5% versus 12-month average of 64.8%. The desk gave a B+ rating on the auction.

Auction Highlights

  • Duration: 10 Years
  • Amount:  $35 billion
  • High yield: 3.448%
  • When-Issued level at the time of the auction 3.439%
  • Tail 0.9 basis points versus six-month average of 1.4 basis points
  • Bid to cover 2.45X vs 12-month average of 2.41X
  • Directs 19.5% vs 12-month average of 18.5%
  • Indirects 67.5% versus 12-month average of 64.8%
  • Dealers 13.0% versus 12-month average of 16.7%

Auction grade: B+

Yields after the Auction.

  • 2-yr: -6 bps to 3.94%
  • 3-yr: -13 bps to 3.59%
  • 5-yr: -11 bps to 3.39%
  • 10-yr: -8 bps to 3.45%
  • 30-yr: -5 bps to 3.80%

Yields Before the Auction.

  • 2-yr: -4 bps to 3.96%
  • 3-yr: -11 bps to 3.61%
  • 5-yr: -9 bps to 3.40%
  • 10-yr: -8 bps to 3.45%
  • 30-yr: -5 bps to 3.80%

U.S. Treasuries hovered near session highs that were reached in reaction to the April CPI report. Issues in the belly are ahead at this juncture with the 3-yr note turning positive for the week while the 10-yr note is back to flat for the week ahead of today’s $35 bln 10-yr note sale, which will follow yesterday’s strong A rated 3-yr note offering.

Average results of previous 12 auctions:

  • High yield: 3.445%
  • Bid-to-cover: 2.41
  • Indirect bid: 64.8%
  • Direct bid: 18.5%

Prior auction results:

  • High yield: 3.455%
  • Bid-to-cover: 2.36
  • Indirect bid: 63.0%
  • Direct bid: 19.9%
  • Directs a measure of domestic demand
  • Indirects a measure of international demand
  • Dealers take the balance

Live From the Pit

From The TradersCommunity US News Desk