The 10-year U.S. Treasury auction was strong, with overseas demand at a historic second-high, while major Wall Street banks were almost shut out

On Wednesday local time, the U.S. Treasury auctioned $39 billion in 10-year Treasury bonds, with the auction results showing very strong demand.

The winning yield for this 10-year U.S. Treasury auction was 4.033%, a significant decrease from 4.255% on August 6, and the lowest since last September. Last September, the market also experienced a wave of economic growth panic, after which the Federal Reserve initiated a 50 basis point rate cut. The winning yield was 1.3 basis points lower than the pre-issue yield, marking the largest difference since the market turmoil in April, indicating strong demand.

The bid-to-cover ratio also performed impressively, coming in at 2.65, the highest since April, compared to 2.35 in the previous auction, with an average of 2.556 over the last six auctions.

The market is most concerned with the internal data of the auction:

The indirect bid ratio was 83.1%, the second highest in history, only behind the 87.9% during the market panic/basis trade collapse in April. Indirect bidders typically include foreign central banks and other institutions participating through primary dealers or brokers, serving as an indicator of overseas demand.

The direct bid ratio was 12.66%, the lowest since April this year. Direct bidders include hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, serving as an indicator of domestic demand in the U.S.

As the "buyers" of all unsold supply, primary dealers received only 4.2% of the allocation in this round, marking a historical low and highlighting the strong actual demand.

Financial blog Zerohedge commented:

Following yesterday's exceptionally strong 3-year Treasury auction, this was another outstanding auction, with the results pushing the 10-year Treasury yield down from an intraday high of 4.10% to a low of 4.03%. This trend was also expected, as the PPI data for the day came in significantly below expectations.

The next suspense is whether Thursday's CPI will confirm the downward trend in inflation, potentially prompting the Federal Reserve to cut rates significantly by 50 basis points at next week's meeting.

Bloomberg commented:

Wall Street's major banks were almost shut out of the U.S. Treasury's 10-year bond auction on September 10.

There are currently 25 primary dealers, who received a record low of 4.2% in this $39 billion auction. Primary dealers are designated by the Federal Reserve and are expected to participate in all Treasury auctions. This is the smallest amount received by primary dealers in a 10-year Treasury auction since the Treasury began publishing bid participation rate data in 2003