US Treasury Bond Auction Highlights of 2023

Treasury bond auctions tell us about credit, about sentiment and lead other financial markets and financing and political fiscal decisions. We keep an active look at each major Treasury auction to gage the bond market and therefore its impacts on currency and stock markets. Here we look back at the treasury auctions of 2023 in our archive of most of the major auctions 2, 3-, 5-, 10- and thirty-year reopening’s. The narrative of “higher-for-longer” dominated through much of 2023, driving rates to levels not seen since 2007. Though if you were to just look at the first and last days of 2023 you would think nothing happened.

U.S. Treasuries completed this year’s note auctions with a $40bln 7-yr notes that met weak demand, though post-auction selling was limited. U.S. Treasuries slid to fresh session lows after. The desk gave a D rating for the auction. The auction followed this week’s earlier $58 billion 5-yr note auction and $57 billion 2-yr note sale which met strong demand and were well-received.

Hungry Bond Traders

Treasury yields finished the year very close to their final levels from 2022 with the 10-yr yield surrendering a tiny 0.2 bps for the year, but that masked all the rate-related speculation that went on leading up to this point. Over the year the 10-yr yield tested 5.000% in late October, from that ‘panic peak’ a strong rally over the next ten weeks drove the benchmark yield to unchanged for the year as the market began pricing in the likelihood of multiple rate cuts in 2024.

Losses on longer-dated Treasuries are beginning to rival some of the most notorious market meltdowns in US history. Bonds maturing in 10 years or more have slumped 46% since peaking in March 2020… That’s just shy of the 49% plunge in US stocks in the aftermath of the dot-com bust at the turn of the century. The rout in 30-year bonds has been even worse, tumbling 53%, nearing the 57% slump in equities during the depths of the financial crisis.” October 4 – Bloomberg (Ye Xie)

At the last session of the year, the fed funds futures market was projecting 75-bps worth of rate cuts by the June FOMC meeting with an equal number of cuts expected in the second half of 2024. The 2s10s spread ended the year at -37 bps, up 17 bps from -54 bps at the end of 2022. The price of crude oil held steady today, falling $8.67, or 10.8%, for the year The U.S. Dollar Index also ended the session flat, at 101.23, surrendering 2.2% in 2023.

Key Catalysts that empowered this year’s Treasury sell off:

“Based on projected intermediate- to long-term borrowing needs, Treasury intends to gradually increase coupon auction sizes beginning with the August to October 2023 quarter. While these changes will make substantial progress towards aligning auction sizes with intermediate- to long-term borrowing needs, further gradual increases will likely be necessary in future quarters.”

US Treasuries are on course for a record year of inflows as investors chasing some of the highest yields in months pile into cash and bonds, according to Bank of America… Cash funds attracted $20.5 billion and investors poured $6.9 billion into bonds in the week through August 9… Meanwhile, US stocks had their first outflow in three weeks at $1.6 billion. Flows into Treasuries have reached $127 billion this year, set for an annualized record of $206 billion, BofA said.” August 11 – Bloomberg (Farah Elbahrawy and Greg Ritchie)

Global debt hit a record $307 trillion in the second quarter of the year despite rising interest rates curbing bank credit, with markets such as the United States and Japan driving the rise, the Institute of International Finance (IIF) said… The financial services trade group said… global debt in dollar terms had risen by $10 trillion in the first half of 2023 and by $100 trillion over the past decade. It said the latest increase has lifted the global debt-to-GDP ratio for a second straight quarter to 336%. Prior to 2023, the debt ratio had been declining for seven quarters.” September 19 – Reuters (Rodrigo Campos)

Losses on longer-dated Treasuries are beginning to rival some of the most notorious market meltdowns in US history. Bonds maturing in 10 years or more have slumped 46% since peaking in March 2020… That’s just shy of the 49% plunge in US stocks in the aftermath of the dot-com bust at the turn of the century. The rout in 30-year bonds has been even worse, tumbling 53%, nearing the 57% slump in equities during the depths of the financial crisis.” October 4 – Bloomberg (Ye Xie)

Key US Bond Auction Highlights 2023

A gauge of auction strength we keep our eye on is bid-to-cover ratios.

These have recently weakened as bonds sold off). With this swift move in rates, we watch to see if the market chases lower yields with stronger bid-to-cover ratios. That could be more consequential than anything else in an otherwise lighter than usual week for data and news, that said the Fed speakers are back out in force.

US banks Preference Toward Maintaining Reserves Impact

There has been a continuation of US banks are showing a preference toward maintaining reserves over US$3T and in order to achieve this the banks are being forced to liquidate their Treasury holdings and hence drive yields higher. Earnings reports from JPM, WFC and C gave us further indication of this pattern.

Still treasury yields have comeback with a growing sense that the bond and stock market are oversold in the short-term and due for a bounce.

Yield Watch


  • 2-yr: -4 bps to 4.25% (-45 bps in December; -17 bps in 2023)
  • 3-yr: -2 bps to 4.01% (-46 bps in December; -23 bps in 2023)
  • 5-yr: UNCH at 3.85% (-45 bps in December; -15 bps in 2023)
  • 10-yr: +3 bps to 3.88% (-47 bps in December; UNCH in 2023)
  • 30-yr: +4 bps to 4.03% (-48 bps in December; +5 bps in 2023)

Key Rates and Spreads


  • 10-year Treasury bonds 3.87%, down -0.03% (3.30-4.99) (new 15 year high 10/20/23 w/e)
  • Credit spread 1.59%, down -0.04% w/w (1.54-2.42) (new 1 year low 12/7/23 w/e)
  • BAA corporate bond index 5.46%, down -0.07% w/w (1-yr range: 5.28-6.80) (14 year+ high w/w 10/20/23)
  • 30-Year conventional mortgage rate 6.67%, down -0.01% w/w (6 month low). (6.07-8.03) (new 23 year high 10/20/23 w/e)

Yield Curve

  • 10-year minus 2-year: -0.38%, up +0.02% w/w (1-yr range: (-1.07 – -0.17) (new 40 year low)
  • 10-year minus 3-month: -1.48%, unchanged w/w (1-yr range: -1.89 – 0.21)
  • 2-year minus Fed funds: -0.98%, up +0.02% w/w
10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (T10Y2Y)

Recap: The Markets Response to The Dovish Pivot Message

  • Nasdaq100 up 3.2% gain this week pushed Nasdaq100 ytd returns to 52%.
  • Semiconductors added another 9.1% adding to be up 62.6% ytd.
  • The S&P500 ended the week with a y-t-d return of 24.9%.
  • The Goldman Sachs most short index surged 14.4% Wednesday and Thursday, trading Friday morning up almost 40% from November 13th lows.
  • The KBW Regional Bank Index (KRX) posted a two-day melt-up of 10.2%, boosting the rally from October 25th lows to 40%.
  • The Wednesday/Thursday “pivot rally” saw the small cap Russell 2000 jump 6.3%, extending the rally off October 27th lows to 22%.
  • Investment-grade CDS prices dropped another four this week to 57.5 bps, the low since January 2022.
  • High yield CDS sank 35 to 367 bps, the lowest level since April 2022.
  • Investment-grade corporate spreads to Treasuries traded Friday below 100 bps for the first time since January 2022.
  • High yield spreads narrowed to April 8, 2022, levels.
  • The iShares High Yield Corporate Bond ETF (HYG) has now returned 5.6% since the Fed’s first hike on March 16, 2022.
  • JPMorgan CDS fell this week to 44.65, the low back to November 2021.
  • Goldman Sachs CDS traded to lows since January 2022.

There is a firm belief the Central Banks have been blindly raising rates because ‘they have to’ and the consequences will be dire, furthermore that the US Administration is bumbling along with damaging decisions one after the other.

Money Market Flows

  • Total money market fund assets gained $16.4bn to $5.886 TN, with a 42-week gain of $993bn (25% annualized).
  • Money funds were up $1.174 TN, or 24.9%, y-o-y.
  • Total Commercial Paper rose $8.3bn to $1.271 TN. CP was up $10bn, or 0.8%, over the past year.

Spurred by slowing inflation and signs of a cooling growth, traders and investors have recently rushed headlong into US government debt, convinced that the Federal Reserve is done raising interest rates and will shift to cutting them by the middle of next year. That ended a six-month losing streak for Treasuries and pushed the market to a gain of 2.6% in November. It’s the biggest advance since March, when there were fears that a banking crisis would sink the economy.

2-, 10- and 30-Year Treasuries Technical Analysis via KnovaWave

Highlights – Federal Reserve

  • Federal Reserve Credit dipped $6.1bn last week to $7.685 TN.
  • Fed Credit was down $1.216 TN from the June 22nd, 2022, peak.
  • Over the past 224 weeks, Fed Credit expanded $3.958 TN, or 106%.
  • Fed Credit inflated $4.874 TN, or 173%, over the past 581 weeks.

Powell at the FOMC:

“Our actions have moved our policy rate well into restrictive territory, meaning that tight policy is putting downward pressure on economic activity and inflation, and the full effects of our tightening likely have not yet been felt.”

“So we’re aware of the risk that we would hang on too long. We know that that’s a risk, and we’re very focused on not making that mistake.”

BUT Powell’s own comments are contradictory. “GDP is on track to expand around 2-1/2 percent for the year as a whole, bolstered by strong consumer demand as well as improving supply conditions.” “Committee participants revised up their assessments of GDP growth this year…” “The labor market remains tight… labor demand still exceeds the supply of available workers.” “…A very high proportion of forecasters predicted very weak growth or a recession. Not only did that not happen, we actually had a very strong year…” “So we’ve seen… strong growth, still a tight labor market…”

Highlights – Mortgage Market

  • Freddie Mac 30-year fixed mortgage rates declined six bps to an almost eight-month low 6.42% (up 1bp y-o-y).
  • Fifteen-year rates dropped 11 bps to a seven-month low 5.80% (unchanged).
  • Five-year hybrid ARM rates fell six bps to a six-month low 6.36% (up 74bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down 18 bps to a seven-month low 6.97% (up 38bps).
Mortgage News Daily

Global Bond Watch

Major Benchmark 10-year Bond markets

Bond Market Performance 2023

Major 10-year Bonds/Notes

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Sources: Scotia Bank, TC, FT

Note these charts, opinions, news, estimates and times are subject to change and for indication only. Trade and invest at your own risk.

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