The U.S. Treasury sold $39 billion in 10-year notes at a high yield of 5.30% on Wednesday, drawing solid end-investor demand despite borrowing costs reaching their highest level since 2000. The auction eased immediate market fears over debt supply and pushed benchmark yields down slightly from multi-decade highs.
Treasury Yields Hit 24-Year High During $39 Billion Note Sale
The U.S. government paid the highest yield for a 10-year note auction this century, as investors demand increasingly higher returns to finance spendthrift governments. The Treasury Department auctioned $39 billion in 10-year notes at a yield of 5.300%, marking the highest auction yield since November 2000, which had recorded a high yield of 5.865%. Earlier in the session, the 10-year Treasury yield had reached 5.35%, its highest level since 2002.
The auction formed the second leg of a heavy three-part borrowing schedule for the week. The government previously sold $58 billion in 3-year notes on Tuesday and scheduled a $22 billion sale of 30-year bonds for Thursday, alongside a liquidity support buyback operation targeting maturities between 20 years and 30 years.
Walter Bloomberg reported on October 7 that the Treasury auctioned the notes with a remaining maturity of nine years and 10 months, functioning as a reopening of the securities originally sold in August with the same coupon interest rate of 4.625% and maturity date of August 15, 2036.
Foreign Investors Absorb Record Note Supply to Ease Market Anxiety
Ahead of the bidding, Chris Low, chief economist with FHN Financial, noted that rates were rising across the board on effectively no new information
, driven purely by jitters about the upcoming auctions. Alex Wolf, global head of macro and fixed income strategy at J.P. Morgan noted that investors faced difficulty determining appropriate yield levels amid volatility in oil prices and macro data while wondering how the Federal Reserve would react. Winnie Cisar, global head of credit strategy at CreditSights, described earlier Treasury auctions as suffering from death by a thousand paper cuts
due to weaker than expected demand driven by long-term debt concerns, higher energy prices, and stronger economic data.
Despite those concerns, the sale met a strong reception. The bid-to-cover ratio reached 2.77, exceeding the six-month average of 2.54 and outpacing the 2.71 recorded a month prior, with total bids coming in at $108.07 billion against $39.00 billion accepted.
The 24-year highs in rates brought out the buyers and resulted in a great auction.
Peter Boockvar, market strategist and author of The Boock Report
Data from the sale revealed high participation from real-money end-investors rather than forced dealer underwriting. Indirect bidders, a category encompassing global central banks, foreign official accounts, and institutional investors, took 80.3% of the auction (specifically 80.34%), surpassing a 10-auction average of 72.4% and a six-month average of 74%. Direct bidders accounted for 17.12% of the purchase volume (just below the average of 18.3%), while primary dealers were left holding just 2.54% of the notes offered, well below their 9.4% mean.
Global Bond Selloffs and Fed Policy Decisions Drive Market Volatility
The yield on 10-year French government bonds rose 12 basis points to 4.876%, while the 10-year U.K. Gilt yield climbed 7 basis points to 5.447%. Government borrowing costs have climbed as energy prices surged and investors weighed long-term fiscal deficits. Long-term bond yields have faced severe upward pressure over preceding months, with the 10-year Treasury yield climbing approximately 60 basis points since the end of July alongside a 20% surge in U.S. crude prices. Core PCE, the Federal Reserve’s preferred inflation gauge, rose 0.2% in August, while the Fed’s upper target rate rose to 4.00% from 3.75%.
With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.
FOMC meeting minutes summary
Following the successful clearing of the 10-year note sale, benchmark yields edged downward. The benchmark 10-year yield fell 2 basis points to 5.27% (trading at 5.286% prior to easing), the two-year yield declined 2 basis points to 4.77%, and the 30-year yield eased 1 basis point to 5.65% (after trading below its 24-year high at 5.666%) as markets found temporary relief from supply anxiety.
