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U.S. Treasury Yields Pare Gains After Strong Auction


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The Treasury Department on Tuesday auctioned $38 billion in 10-year notes.

The Treasury Department on Tuesday auctioned $38 billion in 10-year notes.

Photo: Xinhua/Zuma Press

U.S. government-bond yields pared an early climb Tuesday after a Treasury Department auction of new 10-year notes met strong demand from investors.

The yield on the benchmark 10-year Treasury note traded recently at around 1.138%, according to Tradeweb, down from above 1.18% before the sale. The yield settled at 1.131% Monday.

Yields, which fall as bond prices rise, declined after asset managers and other buyers scooped up the majority of $38 billion worth of new government debt, leaving bond dealers with around 20% of the securities. Treasury prices often fall when dealers win larger shares at the auctions, a sign of weak demand from investors.

The 10-year yield, a key barometer for borrowing costs throughout the economy, still headed for a seventh consecutive daily gain, extending a march above 1% that began after Democrats won control of the Senate. The prospects for greater government spending, along with economic growth and inflation, helped push the yield out of its relatively narrow, post-pandemic range near all-time lows.

Asset managers were keenly watching the results of Tuesday’s auction to gauge whether the recent bond selloff would continue or whether yields will settle in a new range. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said it marked “something of an inflection point for rates,” in a note to clients.

Many were eyeing the so-called bid-to-cover ratio. That reflects demand from buyers compared with the amount of notes sold to measure the success of the auction. Investors and dealers submitted bids totaling 2.47 times the amount of debt sold at Tuesday’s auction, higher than recent averages. Above-average bidding is usually a sign of robust appetite for the debt.

Tuesday’s auction was $3 billion larger than last quarter and $14 billion larger than a year ago, testing investor demand. The U.S. Treasury has raised the size of its bond auctions to fund relief efforts and plans to issue trillions of dollars of securities in coming years to limit economic damage.

Some investors fear that the trillions of dollars in government borrowing could fuel a pickup in inflation. The Federal Reserve shifted its longstanding policy of pre-emptively lifting rates to head off higher inflation in August. Inflation makes bonds less appealing to investors because it erodes the purchasing power of their fixed payments.

Write to Julia-Ambra Verlaine at