On Wednesday, the 10-year Treasury yield declined 5 basis points, the largest decline in several weeks, and the reason for the drop had nothing to do with stimulus expectations, COVID vaccines or central bank talk. Instead, it was because of strong foreign demand for Treasuries at yesterday’s auction, and that helped to underscore a missing ingredient that needs to appear if we are going to see a disorderly rise in yields in the coming months.  

Starting with yesterday’s auction, the Treasury auctioned $24 billion worth of 30-year Treasuries (which is just under a record amount) and the demand was very, very strong. The bid to cover, which is a measure of overall demand for the debt, came in at 2.47. The bidding that occurred was aggressive, as the actual yield on the debt was 2 full basis points below the “When Issued” yield (1.82% vs. 1.84%). Finally, and most notably, “indirect bidders,” which are a proxy for foreign investor demand for U.S. Treasuries, bought 69% of the auction, a very high amount. This strong result sent longer-dated Treasury bonds higher, and yields lower, and it is why the 10-year yield closed down 5 basis points.