Treasuries Recover After 7-Year Auction Sees Record Indirect Bid

  • Benchmark U.S. yields remain close to highest this month
  • Early losses led by European debt on strength in U.K. GDP

Treasuries rallied after an auction of $28 billion in seven-year notes drew a record amount of buying from indirect bidders, signaling interest from foreign central banks and mutual funds.

The benchmark 10-year yield fell about 1 basis point to 2.5 percent at 4:20 p.m. in New York, according to Bloomberg Bond Trader data. It climbed as much as 4 basis points earlier, reaching the highest since December.

“Nothing in recent 10-year volume suggested anything like this interest,” Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee, wrote in a note. The Treasury market had rallied into the auction, making the result even more surprising, he said.

  • Large 10-year futures block buyer immediately following the auction results extended gains
  • USD swap spreads again aggressively widened to year-to-date highs, led by long end in what looks like continued convexity-related paying flows in 10-year and out
  • U.S. yield curve from five to 30 years little changed at about 112 basis points
  • Early losses in Treasuries spurred by stronger-than-expected U.K. GDP, with 10-year debt lower across much of Europe
  • In U.S. economic data, jobless claims rose by 22,000 to 259,000 in the period ended Jan. 21, a four-week high, Labor Department data showed
  • Economic data have tended to exceed expectations this year, explaining why U.S. yields touched December levels; Citigroup Inc.’s U.S. Economic Surprise Index has remained close to the highest level since 2014
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