The U.S. Treasury sold $33 billion in 10-year notes Tuesday at a high auction yield of 2.96%, but fading demand from foreign buyers ahead of tomorrow’s key June inflation reading made for a messy benchmark auction.
Investors bid $2.34 for every $1 of 10-year notes on offer from the Treasury, auction data indicated, the lowest since December of 2020 and a notably softer tally than the 2.41 ‘bid-to-cover’ ratio recorded at the last auction on June 8, when the yield was 3.03%. Prices and yields in the bond market move in opposite directions, making today’s paper more expensive than it was in early June.
Foreign buyers, the data indicated, took down just under 61.3% of the sale, down 2 percentage points from the June sale and well shy of the recent average of around 70%.
Stock Market Today – 7/12: Stocks Higher, Euro Hits Dollar Parity, With Earnings, Inflation In Focus
Benchmark 10-year note yields bumped modestly lower, to 2.956% in the immediate wake of the auction, while 2-year bonds held near 3.041%, levels that maintain the steepest “inversion” of the yield curve since 2007.
Investors typically associated a sustained inversion as a signal of near-term recession as traders sell short-term notes in anticipation of Federal Reserve rate hikes, but buy longer-dated paper in advance of an economic slowdown.
According to a study from the San Francisco Federal Reserve, a sustained inverted yield curve has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
Stocks were little-changed with the Dow Jones Industrial Average marked 90 points higher on the session and the S&P 500 moving 1 point to the downside. The Nasdaq Composite was marked 5 points higher from last night’s close.
The CME Group’s FedWatch tool is showing a 93% chance of a 75 basis point rate hike later this month, and a 30% chance of follow-on move of the same size in September.
The Atlanta Federal Reserve’s GDPNow forecasting tool, a real-time benchmark, suggests the U.S. economy is shrinking at a 1.2% clip, following a likely contraction in both the first and second quarters of the year.
June data on inflation and retail sales is also set for release this week, with the former expected to show another jump in the headline rate, to an eye-watering 8.8%, before the year-on-year measurements begin to subside over the final months of the year.
