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Treasury yields hold steady after 10-year auction goes well

Yields on U.S. government debt remained little changed on Wednesday immediately after a $42 billion auction of 10-year notes drew solid demand.

What’s happening

  • The yield on the 2-year Treasury
    slipped 1.9 basis points to 4.387% from 4.406% on Tuesday. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    was up 1.9 basis points at 4.11% versus 4.091% on Tuesday.

  • The yield on the 30-year Treasury
    rose 1.8 basis points to 4.314% from 4.296% on Tuesday.

What’s driving markets

Calmer conditions prevailed in bond markets on Wednesday, with investors coming around to the likelihood that the Fed will not start to cut interest rates until perhaps May.

The shift away from a possible quarter-point rate cut in March follows January’s stronger-than-expected jobs data released last Friday and comments from various Fed officials suggesting that easing policy next month would be too soon, given the need to ensure inflation sustainably heads toward 2%.

Also possibly helping to suppress yields are concerns about fragility in the commercial real-estate sector after New York Community Bancorp’s
debt was downgraded to junk by Moody’s Investors Service late Tuesday.

Treasury’s $42 billion auction of 10-year notes was met with solid demand with indirect bidders taking 71% of the sale, which is slightly above average, according to Tom di Galoma, co-head of global rates trading for BTIG in New York. The sale ranks as the largest on record for the 10-year note.

U.S. economic data released earlier on Wednesday showed that the U.S. trade deficit widened slightly in December, by 0.5% to $62.2 billion.

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