Treasury 10-Year Auction Sees Modest Demand. Why It Matters.

The difference between the two yields—0.8 basis point—in this case is called a tail. Tails in general indicate government had to entice investors with a premium over the market to buy their debt, indicating less-than-robust demand.

That said, the tail this time around was nothing close to the nearly two basis points seen in October, indicating that demand, while soft, exists.

This “suggests there is demand, but the marginal auction participant is requiring at least a modestly” higher yield, BMO Capital Markets’ Ian Lyngen told Barron’s.

The bid-to-cover ratio came in at 2.45 times, matching May’s level, but slightly lower than 2.56 times seen in the August auction and the average of 2.49 times. Bid-to-cover ratios compare the dollar value of investor bids with the dollar value of debt offered.

Foreign bidders, which generally include central banks and private investors outside of the U.S., took in 69.7% of the debt on offer to them, about even with the average of 70.2%.

The $40 billion auction of the 10-year was widely watched as bond investors were looking for cracks in demand for Treasuries.

Over the past 12 months, only two 10-year auctions have been strong and October’s 10-year note auctions saw the largest tail in six months. The 10-year is considered a key auction since its yield guides the rates on mortgages, credit card balances, and bank loans.

The questions on demand come because the national deficit has grown to $1.7 trillion in fiscal 2023 ended September, from $1.4 trillion a year ago. Higher spending has increased government debt, and investors are worried about finding buyers for all the debt.

Yields on the 10-year note dropped to 4.522% at close from 4.527% before the auction. When demand is weak, yields typically move higher and it’s the inverse when demand is strong.

Write to Karishma Vanjani at [email protected].