In contrast to the solid 3 yr note auction yesterday (thus fading expectations of many more Fed rate hikes), the 10 yr auction today was terrible. The yield of 2.25% was well above the when issued of 2.235%. The bid to cover of 2.23 was well below the 12 month average of 2.44 and the smallest since November. Also of note, dealers got stuck with 35% of the auction, the most since December and that is more than the one year average of 29%.
Bottom line, the results of the two auctions this week are night and day. I’ll garner a guess that yields near 2.20% were just no longer that attractive sitting at 6 week low at the same time 10 yr inflation breakevens are at a 9 week high coincident with the recent uptick in commodity prices with the CRB up 9% over the past 7 weeks. The now off the run 10 yr yield is up by 1 bp since the auction results were posted but are still down 2 bps on the day.
I still argue the tug of war in longer term treasuries remains between the pull lower in yields because of worries about Fed tightening in a modest growth economy (less than 2%) with the auto sector in a recession on one hand and the pull higher due to QT and likely more ECB tapering coming soon. Thus, calling where yields are going from here is not like the old days of just trying to predict growth and inflation right.