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10-Year Treasury Auction Sees Solid Demand As Inflation Data Looms, Growth Bets Accelerate

A key indicator of demand bumped higher Wednesday as investors bought into a richer $36 billion auction of 10-year Treasury notes ahead of Friday's November inflation report.

The U.S. Treasury sold $36 billion in 10-year notes Wednesday at a high auction yield of 1.518% with foreign buyers taking up the majority of the new paper ahead of a key reading of October inflation that could challenge the Federal Reserve's 'transitory' narrative on price pressures.

Investors bid $2.43 for every $1 on offer from the Treasury, auction data showed, a firmer tally than the 2.35 'bid-to-cover' ratio recorded at the last auction on November 9, when the yield was 1.44%, and the recent average of 2.47. Foreign buyers, the data indicated, took down just under 69% of the sale, down 2 percentage points from the November auction..

Benchmark 10-year note yields bumped modestly higher, to 1.513% in the immediate wake of the auction, while 30-year bonds held near 1.87%. 

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Stocks were little-changed with the Dow Jones Industrial Average marked 65 points lower on the session and the S&P 500 edging 1.5 points to the upside. The Nasdaq Composite was marked 45 points higher from last night's close. 

The solid auction clears one of two key hurdles ahead of Friday's November CPI report and next week's Federal Reserve policy meeting in Washington, as Pfizer's PFE indication that its coronavirus vaccine provides solid protection against the Omicron variant allows  investors to focus on inflation risks as the economy roars into the final weeks of its historic 2021 post-pandemic recovery.

The Atlanta Federal Reserve's GDPNow forecasting tool, a real-time benchmark, suggests the U.S. economy is growing at an 8.6% clip, although that tally was dented by the emergence of the Omicron variant late last month. Prior readings put the growth rate at 9.7%. 

The CME Group's FedWatch tool, in fact, is showing an 81.5% chance of a rate hike in June of next year, up from around 50% at the beginning of November.

Friday's November CPI reading, meanwhile, is likely to accelerate beyond the 6.2% pace recorded in the November -- the highest since 1990 -- as used car, rents and airfare increases continue to build.