The U.S. Treasury auctioned off some $21 billion in new 10-year Treasury notes on Wednesday, and the auction results were very weak. This latest auction was expected to be closely followed as interest rates have risen handily since the end of April. With long-term rates so close to 14 month highs, it was at least somewhat surprising to see that the old case of high yields did not cure high yields. Fears of tapering and rising rates are apparently remaining in place even after the Merrill Lynch RIC Report said not to worry about that for now.

Today’s auction was for roughly $21 billion in 9-year and 11-month notes with a 1.75% coupon going off at $95.933134 for a yield of 2.209%. Some $53.1 billion was tendered and right at $21 billion was accepted. Today’s bid-to-cover ratio was low at 2.53.

Primary dealers submitting bids for the house accounts were actually about 66$% of the total $53 billion in bids but were only about 36% of the total accepted bids. Apparently those dealers were trying to bid on the cheap. Indirect bidders, a signal of foreign demand, came to more than half of total accepted bids at $10.84 billion.

Rising interest rates have been a serious concern for many investors, and we have seen the rotation out of bond-like stocks, higher risk high-yield dividend sectors, and we have seen fixed income instruments in most classes trade softly.

After the auction we have the S&P 500 Index down 6 points at 1,620 and the DJIA down 58 at 15,063. The yield on the 10-year Treasury is currently 2.21%.

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