10-year U.S. Treasury yield sees biggest slump in a month as strong bond auction shows thirst for yield

U.S. Treasury yields fell Wednesday after a successful government debt auction highlighted strong demand for long-term government paper in the wake of a January selloff that pushed yields to more appetizing levels for bond buyers.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.090% slumped 4.5 basis points to 1.089% on Wednesday, its largest single-day drop in a month, while the 2-year note rate TMUBMUSD02Y, 0.129% was flat at 0.145%.

The 30-year bond yield TMUBMUSD30Y, 1.836% slid 6.5 basis points to 1.818%, its largest such decrease since Nov. 12.

What’s driving Treasurys?

Heavy bidding at an auction for $24 billion of 30-year Treasury bonds demonstrated the appetite for government paper after the benchmark 10-year Treasury note yield rose over 20 basis points in the span of two weeks. Wednesday’s sale followed a successful auction for $38 billion of 10-year notes held the previous day.

In U.S. economic data, the consumer-price index for December came in at an increase of 0.4%, in line with analysts’ estimates. Stripping out food and energy prices, the core inflation gauge rose by 0.1%.

The year-over-year reading for the CPI came in at 1.4%, and 1.6% for the core figure, compared against economists’ average estimates for 1.3%, and 1.6%, respectively. The headline CPI has now risen for seven months straight but remains below the Federal Reserve’s 2% target.

The data release offers a snapshot of inflationary pressures after bond traders turned bearish on long-dated Treasurys this month amid fears a more aggressive fiscal agenda under Biden could lift economic growth, and potentially push the Federal Reserve to taper its bond buying earlier than anticipated.

Investors also eyed speeches from senior Fed officials on Wednesday to glean clues on when the central bank may reduce its asset purchases. However Fed Gov. Lael Brainard said on Wednesday that the current pace of asset buying was appropriate for some time.

Some attention was paid to the vote to impeach President Donald Trump by Democratic lawmakers in the House on Wednesday but financial markets did not see much political risk in the events in Washington with President-elect Biden due to assume office next week.

In other data, the Fed’s Beige Book showed a third of the U.S. central bank’s 12 districts reported flat or declining activity over November and December.

What did market participants say?

“When you look at U.S. yields relative to the global landscape, and where rates stood heading into the auction, this was some of the most attractive yields we’ve seen in a year,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities, in an interview.

By: Sunny Oh