A key indicator of auction demand slipped lower Tuesday even as investors bought into a cheaper $34 billion auction of re-opened 10-year Treasury notes.
The U.S. Treasury sold $34 billion in 10-year notes Tuesday at a high auction yield of 2.72%, but demand faded modestly from last month’s sale amid the fastest inflation rates in forty years and a pullback in bond buying by the Federal Reserve.
Investors bid $2.43 for every $1 on offer from the Treasury, auction data showed, a modestly softer tally than the 2.47 ‘bid-to-cover’ ratio recorded at the last auction on March 9, when the yield was 1.92%, and the recent average of around 2.47. Foreign buyers, the data indicated, took down just under 64.3% of the sale, up 2 percentage points from the March auction but down from the recent average of around 70%.
Benchmark 10-year note yields bumped modestly higher, to 2.725% in the immediate wake of the auction, while 3-year bonds held near 2.403%.
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Stocks were little-changed with the Dow Jones Industrial Average marked 75 points higher on the session and the S&P 500 moving 14 points to the upside. The Nasdaq Composite was marked 95 points higher from last night’s close.
The CME Group’s FedWatch tool is showing an 87.7% chance of a 50 basis point rate hike in March, but less than a 54.3% chance of follow-on move of the same size in June.
The Atlanta Federal Reserve’s GDPNow forecasting tool, a real-time benchmark, suggests U.S. economic growth has now slowed to a 1.1% clip, down from the 7% growth rate recorded over the three months ending in December.
The solid demand for fixed income assets belies data earlier Tuesday showing the fastest domestic inflation since 1981, with headline CPI surging to 8.5% off the back of record high gas and food prices.
Inflation generally trims investor appetite for fixed income products, as it erodes the present value of future coupon and maturity payments, making them less attractive when compared to cash and near-cash assets.
Benchmark 10-year notes, however, are a bellwether holding in the portfolios of central banks and foreign investment funds, and have remained in-vogue as investors look to hedge near-term recession risk.
