Treasury sells $69 billion in 2-year notes at 4.708% yield as bid coverage declines

Key Facts

The U.S. Treasury sold $69 billion in 2-year notes on October 26 at a high yield of 4.708%, according to data reported by Dow Jones Newswires via Marketscreener. The auction came as the bid-to-cover ratio fell to 2.59 times from 2.63 times at the previous auction. The ratio measures bids against the amount offered, reflecting the volume of demand submitted at auction. Indirect bidders’ share also fell to 45.7%, compared with about 57.7% at the previous auction. The category includes foreign buyers, but its share alone does not establish a broader withdrawal by foreign investors from U.S. assets.

Direct bidders’ share, by contrast, rose to 41.3% from 29.0% at the previous auction, according to Zero Hedge. The source described the share as the highest in its available record, a characterization that should be attributed to it. Primary dealers took 13.0% of the notes offered. These shares show a shift in the distribution of purchases among participant categories, alongside the decline in indirect bidders’ share. Zero Hedge said the rise in direct bids from 29.0% to 41.3% was accompanied by dealers taking the remaining 13.0%.

The high yield at the previous auction, held in September, was 4.787%, compared with 4.708% at the October auction, according to Zero Hedge. In trading after the results, the 2-year note yield rose to 4.712% from 4.707% before the auction results were announced, according to Dow Jones Newswires via Marketscreener. The recorded move indicates an increase of 0.005 percentage points between the pre-results and post-results readings. The yield change coincided with a decline in the bid-to-cover ratio from the previous auction. The published report did not describe broader market moves after the auction.

The auction comes ahead of the Federal Reserve’s Federal Open Market Committee meeting, scheduled for October 27 and 28, according to the board’s official calendar. The press conference is scheduled for October 28. The Associated Press said the market expects the Fed to hold interest rates after raising them at its September meeting, without the quoted report specifying a numerical rate forecast. On September 16, the Fed raised its target range for interest rates by a quarter percentage point to 3.75%–4%, saying in its statement that “inflation remains elevated.” The board added that its decision aims to support a timely return to its 2% inflation target.

The Treasury listed the planned October issuance of 2-year notes at $69 billion. Auctions for these notes are typically held in the second half of the month and announced a few business days beforehand, according to TreasuryDirect. This schedule places the auction among the department’s regular financing operations, while the actual issuance matched the amount listed in the monthly schedule. More broadly, the United States recorded net capital inflows of $199.8 billion in August, according to Treasury data. The total included $178.5 billion in foreign private inflows and $21.3 billion in official inflows, monthly flow data separate from the distribution of bids at the October auction.