The Treasury market got some much-needed good news Wednesday as a closely watched $39 billion 10-year note auction produced exceptionally strong demand. The auction cleared at a high yield of 5.300%, according to the Treasury’s official results.
- With the when-issued yield trading around 5.317% immediately before the auction, that represents a 1.7-basis-point stop-through—meaning investors were willing to accept a yield 1.7 basis points below the prevailing market rate.
- Why it matters: A stop-through is one of the clearest signs of a strong Treasury auction. Recent 10-year auctions have generally cleared much closer to their when-issued yields, making a 1.7-basis-point stop-through particularly impressive.
Bid-To-Cover: Demand was strong by another important measure. Investors submitted roughly $108.1 billion of bids for approximately $39 billion offered, producing a 2.77 bid-to-cover ratio, according to Treasury. That’s well above the roughly 2.54 average of the previous six 10-year auctions.
The biggest positive: Indirect bidders—including foreign institutions and other investors bidding through primary dealers—took an enormous 80.3% of the competitive awards. That’s about 6 percentage points above the recent average of roughly 74%. Direct bidders took another 17.1%, roughly in line with their recent average.
- That left primary dealers with just 2.5% of the auction, compared with a recent average of roughly 8.8%. Treasury’s results show dealers were awarded only $984 million, compared with $6.62 billion for direct bidders and $31.06 billion for indirect bidders.
- The dealer share was the smallest since the financial crisis, according to Barron’s. That’s important because primary dealers effectively serve as the auction’s backstop. When dealers are left holding a large share, it can indicate weak underlying investor demand. Here, the opposite happened: outside investors absorbed virtually the entire auction.
The bottom line: This was a very strong auction — Grade: A. The 1.7-basis-point stop-through was excellent, the 2.77 bid-to-cover easily exceeded its recent average, indirect demand was exceptionally strong and dealers were left with almost nothing. After weeks of concern about whether investors would continue absorbing U.S. debt as yields surged, Wednesday’s auction showed that at yields above 5%, buyers showed up in force.