US Treasury’s 10-year note auction shows solid demand

More supply comes with $25 billion in 30-year bonds on Thursday

Fed seen keeping interest rates on hold Wednesday

10-year Treasury yield touches highest since April 23

By Gertrude Chavez-Dreyfuss and Alden Bentley

NEW YORK, – U.S. Treasury prices rose on Tuesday, pushing yields lower, as a well-received auction of the benchmark 10-year note suggested demand for Treasuries remained intact, boosting other maturities across the curve as well.

Market participants looked to the 10-year note auction as a litmus test of overall demand for U.S. assets, especially from overseas. Amid the tariff shock introduced by the Trump administration last month, analysts had speculated that perhaps foreign investors have started to shun U.S. fixed-income assets.

On Tuesday, however, the sale of 10-year notes came in better than expected, pricing at a yield of 4.342%. That was more than a basis point lower than the expected level at the bid deadline, suggesting investors did not need a higher rate to buy the benchmark note.

The 10-year auction followed a sturdy showing for the same maturity last month.

The bid-to-cover ratio, a measure of demand, was 2.60, slightly lower than the April number, but higher than that seen in February and the 2.56 average. More importantly, dealers accepted just 8.9% of the total, down from 10.7% in April, and the 13.4% average.

The lower dealer acceptance rate suggested there was enough appetite for the 10-year note at the auction that this group of market participants did not have to absorb more than they should of the total issuance. Lower Treasury holdings mean less stress on dealer balance sheets.

“The bulk of today’s early price action lacked conviction,” said Vail Hartman, U.S. rates strategist at BMO Capital Markets in New York. “It wasn’t until the strong reception to the 10-year-auction that we saw a more durable breakout lower in yields.”

Foreign investor uptake of the 10-year note, which is classified under “indirect bids,” however, was weaker at 71.2% compared to the strong 87.9% registered last month. But May’s indirect bids were higher than the 70.6% average.

More coupon supply comes on Thursday, when Treasury will sell $25 billion of 30-year bonds.

In afternoon trading, the 10-year yield fell from a two-week high to 4.310%, down 3.3 basis points.

U.S. 30-year yields slipped 1.4 bps to 4.815%.

On the front end of the curve, U.S. two-year yields dipped 4.8 bps to 3.793%.

Meanwhile, Fed policymakers gathered on Tuesday and are expected to leave interest rates unchanged when their meeting wraps up on Wednesday afternoon. But President Donald Trump’s unpredictable approach to tariffs is creating uncertainty at the Fed and complicating its job.

“I think everyone’s still really waiting for the FOMC battening down the hatches there,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

Bond investors have taken a neutral stance, reflecting caution over whether U.S. trade policy will tip the world’s largest economy into recession.

They said they are staying neutral relative to their benchmarks, reducing their long-duration exposure, or preferring to remain on the shorter end of the yield curve.

Fed policymakers expect the tariffs to increase both inflation and unemployment, although to what degree and for how long is unclear.

The benchmark federal funds futures market has priced in a nearly 80% chance that the U.S. central bank will resume its rate cuts at its July 29-30 policy meeting, according to LSEG calculations. It also sees about 80 bps of easing this year.

Earlier in the session, market players also awaited data on the U.S. trade deficit in March, which widened to a record high of $140.5 billion, jumping 14% or $17.3 billion from the previous month, as businesses boosted imports of goods ahead of Trump’s sweeping tariffs.

Treasury yields showed little reaction to the trade data, however.

This article was generated from an automated news agency feed without modifications to text.