The U.S. Treasury plans to auction $39 billion in 10-year notes soon. Recent averages show a bid-to-cover ratio of 2.56 times. Key details of the auction include a tail of -0.7 basis points. Direct buyers, who are mostly domestic investors, make up 16.3% of purchases, while indirect buyers—mainly international participants—represent 71.7%. Dealers account for the remaining 12.0%. Last month’s auction had a high yield of 4.421%. The upcoming $39 billion auction indicates strong interest from a diverse group of investors. The bid-to-cover ratio of 2.56 shows stable demand—each dollar offered receives more than two and a half dollars in bids. This balance indicates steady interest without urgent adjustments needed. The last auction had a tail of -0.7 basis points, meaning the final yield was slightly lower than expected. Bidders were willing to pay a bit more, showing confidence in long-term rates. This is a positive sign for overall market sentiment. Direct buyers, mainly domestic institutions like pension and mutual funds, bought just over 16% of the total. Their consistent participation suggests they will likely keep investing, even with varying rates. Indirect buyers, including foreign central banks and investment firms, accounted for over 70% of purchases. Their strong involvement often comes when U.S. Federal Reserve policies are clear and there are no major risks with the dollar. Dealers, the banks facilitating the auction, took only about 12% of the total. This smaller share indicates that the market absorbed the volume well, without dealers needing to take on extra risk. Typically, higher dealer allocations might signal weak demand, but in this case, a smaller share is somewhat supportive. The previous auction cleared at a yield of 4.421%. While this is not as low as in 2020, it is stable considering the Fed’s pause on rate increases. Yield watchers can find some reassurance that auctions are not struggling to find balance, even as term premiums rise. For those focused on rate derivatives or swap spread dynamics, these figures are more than just numbers; they set limits. The balance between direct and indirect bidder strength affects long-term options. The foreign buyers’ share above 70% can help reduce volatility in futures if they do not quickly sell off after the auction. With dealers holding only 12%, there is less need for subsequent hedge positions. This means desks are not left with surplus inventory, leading to minimal impact on overnight basis or repo markets. As we look to future issuances and their effects on funding markets, continued strong participation from indirect buyers could ease pressure on duration desks in the swap curve, especially between 7s and 10s. We may see this segment staying tight compared to implied rates, as long as current ranges hold. In summary, this balanced supply allocation does not change perceptions of risk or market positioning. Flows continue to favor end-users rather than intermediaries. For those tracking calendar rolls or engaging in curve trades, this auction trend provides key insights. We should incorporate these findings into our theta and rolldown strategies for the weekly cycle.

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