It has only been about 10 days since we pondered whether the bond rally was signaling the risk of a recession or something else negative in a flight to safety trade. And now a 10-year Treasury auction has gone off rather poorly, and suddenly 10-year Treasury rates are up almost 20 basis points from their lows less than two weeks ago.

The Treasury’s 10-year note auction of a 2.5% coupon went off with a high yield of 2.648%, with some 96.96% allotted at the high yield for a price of 98.714636. These are technically nine years and 11 months to the May 15, 2024, maturity.

The bid-to-offer rate was 2.88, implying that $2.88 was tendered for every $1 accepted by the Treasury.

Primary dealers tendered the most at $40.238 billion, but only $9.33 billion was accepted. Direct bids, non-primary dealers bidding for their own accounts, were $5.915 billion, with almost 44.07 billion accepted. Indirect bids, which include foreign bank demand, had over $14.35 billion tendered and $7.56 billion accepted.

Wednesday’s 10-year Treasury auction may not be a disaster for rates, but this may set the tone for a weaker 30-year Treasury auction due on Thursday.

Poor demand in an auction just two weeks after a bottom in yields generally signals one of two things: 1) the economy is getting better, or 2) no one wants to loan Uncle Sam money this low for 10 years.

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