The U.S. Treasury will auction $38 billion of benchmark 10-year U.S. Treasuries at 1 p.m. EST on Wednesday, March 10. As this is about the trend of U.S. bond yields and even the movement of the stock market, investors are watching with bated breath.
The U.S. Treasury auctioned $38 billion of 10-year Treasury bonds at 1.523%, with a bid multiple of 2.38. Before the bid data came out, the 10-year U.S. bond yield fell more than 1.4 basis points, refreshing the daily low to 1.51% below.
After the 10-year U.S. bond auction, the Nasdaq once turned down briefly, then turned up 0.2%, the Dow maintained more than 400 points of gains, the S&P expanded to 0.7%. 10-year U.S. bond yields fell 1.22 basis points briefly, the intra-day downside expanded to 3 basis points, hitting a low of 1.5143%.
And in the hour before the auction, a measure of market Inflation expectations: the U.S. 10-year inflation-protected Treasury (TIPS) loss/loss balance inflation rate rose 4 basis points to 2.26%, a nearly seven-year high since mid-2014.
Earlier in the day, nominal CPI data for the consumer price index rose 0.4% from a year earlier, in line with expectations, and 1.7% from a year earlier to a 13-month high, but core CPI excluding Food and energy rose 1.3% from a year earlier, weaker than the 1.4% expected, and 0.1% from a year earlier, just half of what was expected.
This would have caused U.S. bond yields to move down in the short term, and the 10-year U.S. bond yield moved down 2 basis points during the day to trade at 1.52% before the U.S. stock market lunchtime and important auctions took place, and the 30-year U.S. bond yield moved down nearly one basis point and fell 2.26%.
Analysts point to higher inflation expectations as one of the drivers of the spike in U.S. bond yields since January, and investors are seeking clues as to whether potential price pressures from improved economic growth prospects will prompt the Fed to raise rates.
In addition to today’s $38 billion 10-year U.S. bond tender sale, the results of the $24 billion 30-year U.S. bond auction will be announced on Thursday local Time, and whether there will be any surprises at that time remains a high priority and may have a significant impact on market sentiment in the coming weeks.
What is still fresh in the market’s mind is that less than two weeks ago, the U.S. Treasury auctioned $62 billion of 7-year Treasuries on Feb. 25, with a record low bid multiple of 2.04, an indicator measure of demand, and a winning bid rate of 1.195%, the highest cut-off yield in February.
At the time, there were comments that this meant no foreign investors wanted U.S. Treasuries, called the most embarrassing and disastrous moment of the 7-year U.S. bond auction in years. This result caused a flash crash in the U.S. bond market, the term of the U.S. bond yields to open the “fly” mode, 10-year yields rose through 1.5% and 1.6% two consecutive hurdles, the day surged 23 basis points. U.S. technology stocks fell hard, with the Nasdaq plunging 3.52%.
The good news is that back on Tuesday, the U.S. Treasury auction of $58 billion in three-year U.S. bonds turned out favorably, with a winning bid rate of 0.355% and an increase in the bid multiple from 2.391 to 2.689, the highest since June 2018. This sent three-year U.S. bond yields down more than 1 basis point in the short term, hitting a low of 0.3283%, with overall intra-day volatility of less than 2 basis points, and helped U.S. stocks, especially technology stocks, rally strongly yesterday.
Ian Lygen, head of U.S. interest rate strategy at BMO, said ahead of Wednesday’s U.S. bond auction that the auction is expected to go well, sending a signal of stability and calm to the market.
Bloomberg said investors betting on rising U.S. Treasury yields are still willing to borrow U.S. bonds at higher costs to short them, potentially providing a potential source of demand for 10-year U.S. bonds and helping to avoid a repeat of the embarrassing 7-year U.S. bond auction two weeks ago.
Analysis also says that the 10-year benchmark U.S. Treasury yield, the anchor of asset pricing, is still hovering at its highest level in more than a year despite its inability to stick above 1.6%, and that the higher yields offered by U.S. bonds will attract overseas buyers, especially institutional investors from Japan.