The U.S. Treasury recently auctioned $42 billion in 10-year notes, with a high yield of 4.255%. The bid-to-cover ratio was 2.35, down from the six-month average of 2.58. Domestic buyers, acting as direct bidders, made up 19.61% of the total, higher than the six-month average of 16.4%. International buyers, also known as indirect bidders, represented 64.23% of the auction, lower than their six-month average of 72.3%. Dealers were left with 16.16%, significantly more than the average of 11.2%. Overall, the auction received a “D” grade.

Low International Interest

This auction showed low international interest, indicated by a drop in demand from indirect bidders. Domestic interest seemed stronger, likely due to stablecoin demand. The Treasury auction on August 6th serves as a warning. The high yield of 4.255% combined with weak demand suggests that the market is struggling to take on government debt. We can expect interest rates to rise in the upcoming weeks. This situation is not isolated. Last week’s July 2025 CPI report showed core inflation stubbornly at 3.8%. The Federal Reserve is unlikely to ease its policies with inflation so high above their target, reinforcing the need for rising yields across the board.

Bearish Bond Positions

Given this, we should consider bearish positions on bonds. We could sell 10-year Treasury note futures (/ZN) or buy put options on bond ETFs like TLT. These strategies would benefit if bond prices drop as yields climb. Higher rates are generally bad for stocks, which we are already observing. The S&P 500 has fallen 3% from its July highs, and the VIX is now above 17, indicating increased fear. We might want to buy puts on major indices to hedge or bet directly on further declines. This market environment resembles late 2023, when the 10-year yield approached 5%, causing turmoil in the stock market. At that time, the market had to adapt to consistently high rates. It seems we are facing a similar challenge now. The issue also boils down to supply and demand. Weak foreign buying means others must fill the gap. Additionally, the Treasury plans to issue another $120 billion in debt by the end of the month. This ongoing increase in supply is likely to keep pressure on borrowing costs. Create your live VT Markets account and start trading now.

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