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

Direct Bidders Flock to the 10-Year Treasury Notes Auction

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Ten-year Treasury notes

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

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Key takeaways

  • On September 9, ten-year T-notes worth $21 billion were auctioned. This is $3 billion lower than the previous month.
  • The coupon rate came in at 2%—the same as August’s auction.
  • The high yield stood at 2.235%. It was higher compared to 2.115% in the previous month’s auction.
  • The bid-to-cover ratio rose 12.50% compared to the previous month. The ratio was 2.7x compared to 2.4x in August. This ratio depicts the overall demand for the auction.

Yield analysis

The yield on ten-year T-notes rose by one basis point in the secondary market from the previous day to 2.21% on September 9.

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Demand analysis

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

The market demand rose for ten-year T-notes from 66% in August to 71.40% in September. The share of indirect bidders fell to 57.60% in September from 60.10% in August. Direct bids rose to 13.80% in September from 5.80% in August.

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

Due to a rise in market demand, the share of primary dealers fell to 28.70% in September from 34.10% in August. Primary dealers act as market makers for the auctioned securities. They take up the excess supply of securities. They include financial institutions like Morgan Stanley (MS) and Credit Suisse (CS).

Investment impact

The following mutual funds provide exposure to T-notes of this maturity:

  • The MassMutual Select Strategic Bond A (MSBAX) invests 12% of its assets in securities with maturities that range 7–10 years. The fund’s week-over-week return fell by 0.20%.
  • The American Funds US Government Sec A (AMUSX) invests 13% of its assets in Treasury securities with maturities that range 7–10 years. Its weekly returns fell by 0.14%.
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