Benchmark Treasury yields fell today as the U.S. Treasury Department is in the midst of selling off $26 billion worth of the benchmark 10-year Treasury notes. The benchmark 10-year Treasury yield dipped lower to 2.967 while the 30-year note slid to 3.115 as of 4:15 p.m. ET.
Yesterday, the Treasury began auctioning off $34 billion worth of 3-year Treasury notes, its largest in the last eight years, as part of a $78 billion quarterly government refunding effort. The selloff will commence on Thursday with an all-time high of $18 billion in 30-year notes.
The auction for the 10-year-notes, which occurred at 1:00 p.m. ET was met with strong demand, quelling any analysts concerns that investors would not purchase all $26 billion in notes–the largest sale since the $25 billion auction of 10-year notes in February 2010.
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Primary dealers, responsible for bidding on a pro-rata share of each auction, walked away with just 27.5% of the 10-year notes, which reflected a decrease from a recent average of 29.8%. However, direct purchases of the 10-year notes was11.3% of total sales, which was above the recent average of 6.5%.
“So much for the record auction size being a disincentive to bid aggressively,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
The auction comes ahead of important inflation data out later this week, but analysts cite short-term rate adjustments in Japan and Europe as potential drivers.
“I still believe though that the main driver of longer end yields in coming months will be how Japanese and European bonds trade in response to the monetary changes going on there,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
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How high the benchmark yields go is anybody’s guess, but JPMorgan Chase CEO Jamie Dimon told CNBC that the 10-year note could climb as high as 5%. Dimon’s prediction underscores a robust economy, especially with the Commerce Department announcing a 4.1% increase in GDP during the second quarter, which was spurned by a mix of tax cuts, deregulation and spending increases.
“I think rates should be 4 percent today,” said Dimon. “You better be prepared to deal with rates 5 percent or higher — it’s a higher probability than most people think.”
For more trends in fixed income, visit the Rising Rates Channel.