uploads/// Year Treasury Note Issuance versus Bid Cover Ratio

Overall and Market Demand Fall for 10-Year Treasury Notes


Aug. 19 2015, Published 9:59 a.m. ET

Ten-year treasury notes

The U.S. Department of the Treasury conducts an auction for the ten-year Treasury notes, or T-notes, once a month. The yield on the ten-year T-notes is considered a benchmark in financial markets.

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Investment impact

The following mutual funds provide exposure to T-notes:

  • The MassMutual Select Strategic Bond A (MSBAX) invests 12% of its assets in securities with maturities in the range of 7–10 years. The fund’s week-over-week return was -0.29%.
  • The American Funds US Government Sec A (AMUSX) invests 13% of its assets in Treasury securities with maturities in the range of 7–10 years. Its weekly returns fell -0.14%.

Key takeaways

  • On August 12, ten-year T-notes worth $24 billion were auctioned. This was $3 billion higher than the previous month.
  • The coupon rate came in at 2%. It was lower compared to 2.13% in July’s auction.
  • The high yield stood at 2.115%. It was lower compared to 2.225% in the previous month’s auction.
  • The bid-to-cover ratio fell by 11.80% compared to the previous month. The ratio was 2.4x compared to 2.7x in July. This ratio depicts the overall demand for the auction.
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Yield analysis

The yield on the ten-year note fell by 1 basis point in the secondary market from the previous day to 2.14% on August 12.

Demand analysis

The marginal rise in the share of the indirect bidders along with a sharp fall in the share of direct bidders resulted in a fall in the overall market demand.

Market demand fell for ten-year T-notes from 70.20% in July to 66% in August. The share of indirect bidders rose slightly to 60.10% in August from 58.10% in July. Direct bids fell to 5.80% in August from 12.10% in July.

Indirect bidders include bids from foreign central banks while direct bids are from domestic money managers like State Street (STT) and BlackRock (BLK).

Due to a fall in market demand, the share of primary dealers rose to 34.10% in August from 30% in July. Primary dealers act as market makers for the auctioned securities. They take up securities’ excess supply. They include financial institutions like Morgan Stanley (MS) and Credit Suisse (CS).


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