The U.S. Treasury sold $32 billion in 10-year notes Wednesday at a high auction yield of 3.575% Wednesday as bidders snapped-up the new paper ahead of tomorrow's December inflation report amid renewed bets on easing consumer price pressures.
Investors bid $2.53 for every $1 of 10-year notes on offer from the Treasury, auction data indicated, a notably firmer tally than the 2.31 'bid-to-cover' ratio recorded at the last auction on December 12, when the yield was just 3.625%, and the highest since August.
Prices and yields in the bond market move in opposite directions, making today's paper more expensive than it was in early December. Foreign buyers, the data indicated, took down around two thirds of the sale, up from the 31.7% figure reported in December.
Stocks extended gains in the wake of the auction results, with the Dow Jones Industrial Average marked 163 points higher on the session and the S&P 500 rising 32 points.
Benchmark 10-year notes were holding at 3.576% in the wake of the auction, while 2-year notes were pegged at 2.249%.
The solid demand could suggest traders are looking for a softer reading from tomorrow's inflation report, given that investors generally shy away from bonds as inflation pressures -- which erode the value of fixed income payments -- accelerates.
The Commerce Department will publish its December CPI report Thursday at 8:30 am EST, with analysts expecting headline inflation to fall to 6.5%, from 7.1% in November, with so-called core consumer price pressures -- which strips out food and energy costs -- easing to an annualized rate of 5.7%.
Despite minutes from Fed meetings warning that rates will rise past 5%, and stay there for some time, suggestions of near-term hikes from Fed Governors in media interviews and Chairman Jerome Powell's recent warnings on the risks of unchecked consumer price risks, stock and bond markets have continued to test the central bank's overall inflation-fighting message.
The S&P 500 has risen around 3.36% since late December, a modest gain when compared to last year's brutal 20% decline, but nonetheless telling in the face of the Fed's hawkish warnings.
The CME Group's FedWatch, meanwhile, is pricing in a 77.2% chance of a 25 basis point rate hike from the central bank on February 1, with bets on a potential rate cut emerging in the Fed's September meeting.
