The U.S. Treasury is about to auction 10-year notes. Here are the average numbers from the past six months: – Bid-to-cover ratio: 2.58 – Tail: -0.8 basis points – Domestic demand: 16.4% – International demand: 72.3% – Demand from dealers: 11.2% The yield on 10-year notes is important as it sets the standard for mortgage rates and other loans. Recently, the 30-year mortgage rate dropped to 6.77%, down from 6.83% last week. The yearly highs and lows for this rate were 7% and about 6.7%.

Market Reactions To Auction Results

The success of the auction will depend on how actual results compare to these averages. If demand is strong, yields may fall. If demand is weak, yields could rise. Today, the 10-year yield increased by 3.9 basis points. As we approach the auction results, we are eager to see if they deviate from recent trends. The current 3.9 basis point rise indicates market anxiety over demand. A bid-to-cover ratio below 2.58 or low indirect bidder participation may signal weakness and lead to higher yields in the short term. The overall economy shows signs of slowing down, which usually supports lower rates. The latest Consumer Price Index (CPI) data for July 2025 revealed a drop in headline inflation to 2.9%. Additionally, the jobs report showed that payroll growth was below expectations, indicating a cooling job market. This suggests the Federal Reserve might be close to ending its rate hikes, which could lower yields in the coming weeks.

Strategies For Traders In Bond Market

In light of this, traders have an opportunity in derivatives that benefit from falling yields—meaning increasing bond prices. They might consider buying call options on 10-Year Treasury Note futures (ZN) in anticipation of a potential rally. This approach offers upside potential if auction demand is strong or if the market shifts focus to easing economic data. However, managing risk is crucial. A surprisingly weak auction could lead to a quick sell-off in bonds. To hedge against this, traders can buy put options on ZN futures to protect against a sudden rise in yields. This balance can shield traders from volatility. We saw similar trends in late 2023 when mixed economic signals led to swings in the bond market. These shifts highlighted how quickly market sentiment can go from worrying about inflation to focusing on economic slowdowns. Being ready for either scenario is vital now. A key metric to watch during the auction is the participation of indirect bidders, which indicates foreign demand. A figure below the average of 72.3% would be concerning and suggest that international buyers may be pulling back. This could counter the positive domestic economic outlook and keep rates high. If today’s auction results are weak, we might see a short-term spike in yields. This could be a good buying chance for traders who believe rates will trend lower in the medium term based on economic data. We’re looking to make favorable moves if that situation occurs. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now