US 10 Year Bond Auction Gets Solid Foreign Demand; Stocks Hold Gains

Foreign demand for the $38 billion 10-year note auction slipped modestly from February, but the yield of 1.523% was well shy of last week's one-year peak
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The U.S. Treasury sold $38 billion in 10-year notes Wednesday at a high auction yield of 1.523% with solid demand for the benchmark paper following a softer-than-expected reading for February inflation. 

Investors bid $2.38 for every $1 on offer from the Treasury, auction data showed, modestly higher than the prior auction on February 10, when the yield was 1.155%.

With around $18 trillion in global government bonds trading with a negative yield, the 1.523% yield on a risk-free 10-year attracted robust international demand, with foreign buyers taking up around 57% of the overall total, down from the six-month average of around 60.9%.

The sale edged 10-year note yields modestly lower, to 1.512%, and the overall auction strength allowed U.S. stocks to hold onto previous gains, with the Dow Jones Industrial Average marked 400 points higher on the session and the S&P 500 adding 27.5 points from last night's gains.

The tech focused Nasdaq, which also the most sensitive to interest rates, was marked 30 points higher following the auction results.

This week's bond sales -- part of a $274 billion quarterly funding target that was established before the Senate passed President Joe Biden's $1.9 trillion COVID relief bill -- comes amid a modest easing of inflation expectations even as investors look to a faster-than-expected post pandemic recovery and oil prices hover at the highest levels in more than two years.

Headline February CPI was pegged at an annual rate of 1.7%, Commerce Department data indicated Wednesday, but so-called core inflation, which strips out volatile components such as food and energy prices, eased to a monthly pace of 0.1% from the previous month.

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 2.38%m down from the 2008 high of 2.5% it hit last Wednesday but still firmly ahead of the Fed's 2% inflation target.

The Treasury sold $58 billion in 3-year notes at an auction-high yield of 0.335%, with foreign demand falling just below average at 47.8%. Overall demand for the new paper, however, was solid, with bidders seeking $2.69 for every $1 on offer from the government, the highest since June of 2018.