US Treasury sees strong interest in 10-year auction

By Karen Brettell

June 11 (Reuters) - The U.S. Treasury Department saw strong interest in a $39 billion sale of 10-year notes on Wednesday, indicating demand for the debt remains strong despite concerns that foreign investors are moving away from the market.

Yields on the benchmark 10-year note US10YT=RR fell to 4.41% after the results were published, from around 4.50% beforehand. They were last down 6.8 basis points on the day.

The notes sold at a high yield of 4.421%, around half a basis point below where they traded before the auction. Demand was 2.52 times the amount of debt on offer, below an average of 2.60 times, according to BMO Capital Markets.

“I think you could probably have a sigh of relief that the 10-year auction didn’t tail at all but tomorrow is going to be the bigger test (for demand),” said Lawrence Gillum, fixed income strategist for LPL Financial, referring to worries over appetite for global long-dated government debt securities. “The 30-year auction is the big one,” he added.

The Treasury will sell $22 billion in 30-year bonds on Thursday. Demand for this maturity has fallen relative to shorter-dated debt due to the uncertainty over the longer-term fiscal and economic outlook for the United States.

"The fiscal outlook is definitely weighing on the long end," said Jonathan Cohn, head of U.S. rates desk strategy at Nomura Securities International in New York.

That said, lower than expected inflation data for May on Wednesday and a "softer than interpreted," jobs report for last month on Friday could boost demand for the longer-dated debt, Cohn said.

The 10-year yield hit a three-month high last month while 30-year yields were the highest since October 2023 as investors focused on a worsening U.S. fiscal trajectory. Congress is working on a tax and spending bill that is expected to add trillions to the $36 trillion U.S. debt load over the coming decade.

U.S. President Donald Trump’s erratic implementation of tariffs along with expectations that the trade levies will dent growth and increase inflation have raised concerns that foreign investors will reduce exposure to the United States.

Trump said on Wednesday that a U.S.-China trade deal is "done," hours after negotiators from Washington and Beijing agreed on a framework to get a fragile trade truce back on track.

So far there have been no obvious signs that foreign investors are moving away from U.S. government debt.

The Treasury breaks down auction demand into categories: primary dealers, direct and indirect bidders. Many analysts watch interest from indirect bidders as a proxy for foreign interest, though they also note that this is not a clean indicator as the category also includes many U.S. asset managers.

Demand from these investors on Wednesday was seen as strong by analysts. They took 70.6% of the sale, according to BMO.

Large foreign purchasers including China also qualify for direct bidding status. BMO said these buyers took 20.5% of the sale.

"Generally, yes, it was well bid. We saw a very decent indirect bid and direct bid, so it should alleviate a lot of concerns about the demand for Treasuries, especially longer-dated Treasuries," said Kim Rupert, managing director, global fixed income analysis, at Action Economics in San Francisco.

Treasury allotment data shows that foreign and international investors have increased purchases since Trump's April 2 "Liberation Day" tariff announcement. They bought $7.88 billion in May’s 10-year auction and $7.17 billion in April, up from $4.64 billion in March.