On Thursday (April 24), the U.S. Treasury held its final bond auction of the week—a $44 billion seven-year Treasury bond auction. Despite a decline in winning yields compared to the March auction, demand remained tepid, and the continuous drop in foreign buyer participation raises concerns about the future trajectory of the U.S. Treasury market.
This 7-year Treasury auction had a yield of 4.123%, down 11 basis points from the March auction. Nevertheless, it was still higher than the pre-auction yield of 4.121%, indicating weak demand with a yield tail. The bid-to-cover ratio was 2.55 times, below the average of 2.67 times from the past six auctions, showing market demand is rather flat.
Particularly worrisome is the further decline in indirect bidders (foreign buyers) who captured only 59.3% of the share, down from 61.2% in March, marking the lowest level since December 2021. This shift has sparked concerns about the long-term demand for U.S. Treasurys. Direct bidder demand remained relatively stable at 25.44%, slightly lower than last month's 26.1% but still relatively robust.
The allocation for primary dealers reached 15.3%, the highest since May 2024, indicating weak auction demand, forcing primary dealers to absorb more unsold bonds. Notable financial website Zerohedge pointed out that the auction results reflect market uncertainty about the future demand for U.S. Treasurys, especially with the continuous decline in foreign buyer participation. If this trend continues, the Federal Reserve might have to intervene by adopting debt monetization operations (QE) to maintain market stability.
From market reactions, as U.S. President Trump's stance on U.S.-China tariffs and Federal Reserve intervention softened, Treasury yields generally fell on Thursday, with the 10-year Treasury yield closing at 4.31%, down about 8 basis points from the previous day. However, the market remains cautious about the volatility of future U.S. policies. Slawomir Soroczynski, Head of Fixed Income at Crown Agents Investment Management, stated that the uncertainty of U.S. policy still significantly impacts the market, making the future situation challenging to predict.
Overall, the demand in the U.S. Treasury market is weak, with a significant drop in foreign buyer participation, raising concerns that if this persists, it might force the Federal Reserve to intervene once again to sustain market liquidity.
