A group of bidders that has often served as a proxy for foreign investors bought a record share of Tuesday’s auction of 10-year Treasury notes.
The group, known as indirect bidders, won a record 73.8% of the Treasury Department’s $27 billion (U.S.) auction of 10-year notes. That group typically includes foreign investors such as central banks, along with domestic mutual funds, and is closely watched because it can signal overseas demand for U.S. government debt. Indirect bidders have purchased 56% of the $2 trillion of notes and bonds auctioned this year.
Foreign demand at Treasury auctions has been a focus for investors and analysts because it has recently fallen to its lowest level since 2013. The decline is one factor pushing yields on government debt to multiyear highs, some analysts said.
Several analysts said the most likely sources of Tuesday’s bids are foreign investors and U.S. mutual funds, which according to Treasury data have bought almost half of the U.S. government notes and bonds sold at auction this year. Foreign investors include individuals, insurance companies, pension funds and central banks.
More precise Treasury Department data on purchasers won’t be available for about a month. But recently, most of the U.S. cash heading into bond mutual funds been directed to portfolios that invest in short-term securities, not 10-year notes, said Jim Vogel, head of interest-rate strategy at FTN Financial.
“That tends to make you think overseas investors may be a bigger factor,” he said.
Some analysts said the increased demand could reflect this year’s rise in yields, with the yield on the 10-year note ending Tuesday at 3.214%, just below the seven-year high it reached last month. Several said recent stock-market swings could have also boosted demand for government bonds.
“It could be an echo of the volatility in stocks that we saw last month,” said Ian Lyngen, head of U.S. government bond strategy at BMO Capital Markets.
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