By Vivien Lou Chen
Very strong auction results come as U.S. stocks hit session highs
Bond-market participants got a major surprise Wednesday afternoon when the Treasury Department’s $39 billion auction of 10-year notes produced very strong demand, helping to alleviate concerns that buying interest would fail to hold up given tariff-driven volatility.
The fear going into the auction was that both foreign and domestic investors would pull back from the sale. Instead, results released just after 1 p.m. Eastern time showed indirect bidders took 87.9%, which was well above average, and that the sale produced a stop-through of 3 basis points in a sign of very solid demand.
Earlier in the session, Wednesday’s broad-based selloff in Treasurys was raising alarm bells over what is regarded as the world’s deepest and most liquid bond market. Herman Sanne, who sits on the institutional equity sales side of Jefferies in Asia, pointed to the beginning of liquidity problems for U.S. government debt and the potential need for the Federal Reserve to step in to ensure the market continues to function. The 10-year auction’s robust results helped to alleviate this need, for now.
See: What the Fed could do as stock-market rout spreads to bonds, bank lending
Long-dated U.S. government debt began to aggressively sell off just after midnight on Wednesday, when President Donald Trump raised the total tariff on Chinese goods to 104% – kicking off a big jump in the 10-year yield BX:TMUBMUSD10Y to as high as 4.51% as trading wore on. The yield on the 30-year bond BX:TMUBMUSD30Y rose to as high as 5.02%. Yields eventually moved off those levels, but closed solidly higher on the day, with the 10-year rate at 4.41% and the 30-year rate close to 4.8%.
China’s response to Trump’s action on Wednesday was to raise its tariffs on U.S. imports to 84%.
Turmoil in the bond market from what could have been a poor 10-year auction result was expect to diminish investors’ appetite for other assets. Instead, the solid outcome of Wednesday’s sale – coupled with Trump’s announcement of a 90-day pause and much lower tariffs on most global trade partners – helped send U.S. stocks to a historic day. The Dow Jones Industrial Average DJIA rose 2,962.86 points, or 7.9%, to finish with its biggest one-day point gain on record at 40,608.45. The tech-heavy Nasdaq Composite COMP jumped by 12% for its best day since January 2001.
Before Wednesday’s auction, stocks were looking for upward momentum after having suffered volatile selloffs as the result of Trump’s rollout of sweeping tariffs against virtually all U.S. trading partners on April 2. The S&P 500 and Dow ended Tuesday’s session with their largest four-day percentage drops since March 2020.
“A perfect storm of bad news” had been weighing on the Treasury market, said Lawrence Gillum, chief fixed-income strategist for LPL Financial in Charlotte, N.C. “Sticky inflation, a patient Fed, potential foreign-buyer boycotts, hedge-fund deleveraging, rebalancing out of bonds into cash, and an illiquid Treasury market are all reasons why Treasury yields continue to move higher,” he said prior to Wednesday’s 10-year note sale.
Treasury Secretary Scott Bessent, meanwhile, has played down the bond-market turmoil, telling Fox Business that it reflected the sort of normal deleveraging that happens every few years. “I believe there is nothing systemic about this,” Bessent said.
Tuesday’s $58 billion sale of 3-year notes BX:TMUBMUSD03Y was seen as offering some ominous signs. It produced a tail of 2.3 basis points in a sign of poor demand, and below-average bidding by nondealers of 79.3%, which forced primary dealers to step in by more than they usually would. As Gillum put it, the 3-year Treasury auction “was objectively horrible, with the Treasury Department having to pay up to entice demand that still didn’t really show up.”
With Wednesday’s 10-year auction now out of the way, the Treasury is set for a $22 billion sale of 30-year bonds on Thursday.
-Vivien Lou Chen
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04-09-25 1618ET
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