Ahead of CPI tomorrow, the 10 yr note auction was pretty good. The yield of 3.575% was just under the when issued pricing of 3.58%. The bid to cover of 2.53 was above the one yr average of 2.43. And, dealers were left with 15% of the auction, the least since August 2022.
Bottom lining an auction other than saying it’s good or bad is always difficult because we don’t know what the motives for buying were and thus we can only guess. The growing consensus is long term yields will continue to fall because inflation and economic growth is rolling over. While I believe inflation and growth is rolling over (though inflation is still a longer term issue I believe and have stated many times), I still am very uncertainty as to where long rates go. I’m highly confident instead that short term rates are at or near the highs and are a buy. Again, where long rates go will be influenced by how the BoJ and ECB handle further tightening of their policies this year. Also, how the US Treasury market handles a large pick up in issuance at the same time we have rising budget deficits, QT, and the lack of buying from foreign central banks and banks are big factors that so many seem to be ignoring.
In response, yields are at the lows of the day.
10 yr Yield
10 yr Inflation Breakeven