U.S. Treasury note auction bid-to-cover ratio falls to 2.468 as indirect bids decline

Key Facts

The U.S. Treasury’s 10-year note auction, held on November 10, recorded a bid-to-cover ratio of 2.468, down from 2.771 at the October auction, according to a ZeroHedge report. The result was for a $42 billion offering, according to the U.S. Treasury’s schedule, on a day when Treasury yields rose after inflation data were released. The high yield at the auction was below the 5.317% recorded the previous month. But it was one basis point above the 5.010% when-issued yield. That means the final yield was slightly higher than the level at which the notes were trading before the auction result was set.

Indirect bids fell to 61.2% of the total allocation, compared with 80.3% in October, the lowest level since October 2023, according to the report. The available reliable source did not identify this category in a way that would support describing it as representing particular investors or institutions. By contrast, the share of direct bids rose to 29.0% from 17.1% the previous month. The report said this was the highest share since September 2013. The shift shows a divergence in the allocation shares of the two categories, while the overall bid-to-cover ratio remained below the previous auction’s reading.

Primary dealers retained 9.77% of the offering, their largest share since May, according to ZeroHedge. This share coincided with a decline in indirect bids and a rise in direct bids, making the distribution of purchases markedly different from the October auction. Tuesday’s auction followed a weaker three-year note auction on Monday, the report said. The source also cited a return of investment-grade corporate issuance and AI-related trading as factors that could weigh on demand for longer-dated bonds. The report did not provide a separate measure of the effect of either factor on the auction result.

The auction followed a 0.4% rise in the seasonally adjusted U.S. Consumer Price Index in October, after a 0.6% increase in September, according to the Bureau of Labor Statistics. The October report was released on November 10 at 8:30 a.m. Eastern time, according to the bureau’s schedule. The shelter index rose 0.3% during the month, accounting for more than 30% of the monthly increase in the overall index. The food index rose 0.5% and the energy index 0.7%. The auction report said Treasury yields rose by more than 10 basis points during the day and topped 5.0% for the first time in weeks, while the Associated Press reported that the 10-year yield reached 5.01%, up from 4.88% late in Monday’s session.

The Associated Press linked the rise in yields after the inflation data to higher trader expectations for rate increases, saying persistent high inflation made a Federal Reserve rate hike at its next meeting in December highly likely. The agency quoted Fed Governor Christopher Waller as saying a half-percentage-point increase was possible. More broadly, a November 4 Reuters report said the Treasury Department’s revision to its language on auction sizes could open the way to a shift in the issuance mix toward shorter and intermediate maturities, with the possibility of reducing longer-dated issuance. Yields on 10-year and 30-year notes reached their highest levels since 2002 during October’s selloff. The Treasury said it expected to keep auction sizes for nominal and floating-rate notes unchanged over the next few quarters, while continuing to assess structural demand and the costs of issuance options.

The next auction schedule includes a $25 billion offering of 30-year bonds on November 12, according to the Treasury. The Bureau of Labor Statistics also scheduled the release of the October Producer Price Index for November 13 at 8:30 a.m. Eastern time. Both releases follow the 10-year auction and consumer price reading on the same day. According to the Associated Press, the rate path remained central to market expectations ahead of the December meeting amid persistent high inflation. Producer price data and the 30-year auction result will provide the next two points for tracking inflation developments and demand for Treasury debt.