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US 10-Year Bond Auction Attracts Yield of 1.68%; Overall Demand Slips

Foreign appetite for the $38 billion 10-year note rose from last month, but overall demand slipped modestly from March even as yields climbed to 1.68%.

The U.S. Treasury sold $38 billion in 10-year notes Monday at a high auction yield of 1.68% with improved demand for the benchmark paper ahead of a key reading of March inflation later this week. 

Investors bid $2.36 for every $1 on offer from the Treasury, auction data showed, modestly lower than at the prior auction on March 10, when the yield was 1.523%. Foreign buyers, the data indicated, took down just under 60% of the sale, suggesting the week's $271 billion in new bonds sales are unlikely to disrupt markets heading into tomorrow's inflation reading.

The Commerce Department will publish its consumer price index estimate for the month of March tomorrow at 8:30 am Eastern time, with economists looking for a headline reading of an annual increase of 2.5%, 50 basis points ahead of the Federal Reserve's 2% target.

However, comparable figures for the months of April through July, which will reflect changes from the peak of last year's coronavirus pandemic, are expected to show a notable acceleration of inflation measures that investors are concerned will last for a longer period that Fed officials, who have consistently said the impact will be temporary.

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Fed Chair Jerome Powell repeated this view last night during his interview on CBS's 60 Minutes, during which he said he would like to see the central bank's preferred inflation gauge, the personal consumption expenditures index, "on track to move moderately above 2% for some time. When we get that, that’s when we’ll raise rates.”

Bond investors are growing increasing concerned that trillions in government stimulus, myriad Fed support efforts, surging job creation and the fastest pace of U.S. growth in more than three decades will stoke inflation pressures faster than the Fed can react.

The so-called breakeven rate between five-year Treasury bonds and five-year inflation protected securities, a key market gauge for consumer price increases, was marked at 2.48% this week, down from the 2008 high of 2.5% it hit last month but still firmly ahead of the Fed's 2% inflation target.