Ten-year Treasury Yields Drop Before $40 Billion Auction

On Wednesday morning, yields on Treasury bonds experienced a predominantly downward trend as the market anticipated a 10-year bond auction and a series of speeches by Federal Reserve representatives.

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Here's what's happening:

• The yield on the 2-year Treasury BX:TMUBMUSD02Y inched up by slightly less than 1 basis point, rising from 4.915% on Tuesday to 4.920%.
• The yield on the 10-year Treasury BX:TMUBMUSD10Y decreased by 1.3 basis points, falling from 4.570% on Tuesday afternoon to 4.557%.
• The yield on the 30-year Treasury BX:TMUBMUSD30Y declined by 3.8 basis points, dropping from 4.734% late on Tuesday to 4.696%.

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Factors influencing the market:

• Market participants are closely watching the Treasury's $40 billion auction of 10-year notes scheduled for 1 p.m. Eastern time. This auction will serve as an indicator of demand for longer-term government debt.
• The successful sale of $48 billion in 3-year notes on Tuesday, meeting expectations, has raised hopes that the remaining auctions this week will also proceed smoothly. The decline in yields for 10- and 30-year bonds leading up to the 10-year auction reflects renewed interest from buyers.
• Several Federal Reserve officials, including New York Fed President John Williams, Fed Vice Chair for Supervision Michael Barr, and Fed Vice Chair Philip Jefferson, are scheduled to make statements on Wednesday.
• According to the CME FedWatch Tool, the market is currently pricing in a 90.4% probability that the Fed will maintain interest rates within the range of 5.25%-5.50% on December 13, with a 16.3% chance of a 25-basis-point rate increase to a range of 5.5%-5.75% by January.
• In economic data released on Wednesday, wholesale inventories for September increased by 0.2%.

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Analyst insights:Will Compernolle, a macro strategist at FHN Financial in New York, noted that the first two trading sessions this week have been remarkable not due to new developments but because bond yields have managed to sustain the significant rally from the previous week.

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He also highlighted that the 3-year U.S. Treasury auction on Tuesday did not signal any early concerns about the market's ability to absorb the increased auction size following last week's refunding announcement. Compernolle anticipates that Wednesday's 10-year U.S. Treasury auction will provide further insights into the market's appetite following the refunding, with a 30-year U.S. Treasury auction scheduled for the next day.