The US Treasury will auction $39 billion in 10-year notes today at 1 PM ET. This is the second of three auctions happening this week. In the previous auction, strong interest was shown in 3-year notes, particularly from international investors. **Key Metrics** Here are some important metrics to compare with six-month averages: – Tail: -0.8 basis points – Bid-to-cover ratio: 2.56X – Domestic buyers: 17.4% – International buyers: 71.1% – Dealers: 11.4%

Current Yield Overview

Yields for US Treasuries are currently low: – 10-year yield: 4.0492% (down 2.5 basis points) – 2-year yield: 3.531% (down 1.1 basis points) – 30-year yield: 4.697% (down 2.0 basis points) The 10-year yield, which influences consumer borrowing costs, has fallen about 30 basis points since it peaked at 4.347% in August. The 30-year mortgage rate has dropped sharply from 7.0% to 6.49%, a decrease of 51 basis points. So far this year, the 10-year yield has fallen 76 basis points since its peak. However, mortgage rates for 2025 are still about 15 basis points higher than expected. Today’s auction at 1 PM is crucial for determining future interest rates. Yesterday’s strong international demand for 3-year notes could carry over, potentially pushing the 10-year yield below 4.00%. This follows last week’s softer inflation report, where the August Consumer Price Index (CPI) indicated that core inflation is moderating at 2.8%, increasing expectations for lower rates.

Impact on Yield Curve and Market Volatility

Attention is on how the auction affects the yield curve, especially the spread between 2-year and 10-year yields, which is currently 52 basis points. A successful auction could flatten this curve as traders anticipate the Federal Reserve might ease policies by early 2026. The Fed has held rates steady for the past nine months, and futures markets are now pricing a 60% chance of a rate cut by March 2026. We are also monitoring the spread between mortgage rates and Treasury yields, which has widened for most of 2025. Although this spread has narrowed by about 15 basis points since mid-August, it is still above the historical average from 2015-2019. This suggests that mortgage-backed securities could continue to outperform Treasuries, making this a potentially attractive relative value trade. Due to the uncertainty surrounding the auction’s results, bond market volatility may increase. The MOVE Index, which tracks Treasury market volatility, has declined from its highs earlier this year but remains around 110, well above its pre-2022 average. This creates opportunities to use options on Treasury futures to prepare for significant moves in yields in either direction over the next few weeks. Create your live VT Markets account and start trading now.

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