On Wednesday, the U.S. Treasury auctioned $39 billion in 10-year notes, with results showing exceptionally strong demand.

The 10-year Treasury auction achieved a yield of 4.033%, significantly lower than the previous auction's 4.255% on August 6th, marking the lowest level since September last year. In September, markets also experienced economic growth concerns, followed by the Federal Reserve initiating a 50 basis point rate cut. The winning yield came in 1.3 basis points below the pre-issue yield, representing the largest "stop-through" since April's market turbulence, indicating robust demand.

The bid-to-cover ratio also performed impressively at 2.65, the highest since April, compared to the previous 2.35, with a six-auction average of 2.556.

Market attention focused on the auction's internal metrics:

Indirect bidder participation reached 83.1%, the second-highest on record, trailing only April's 87.9% during the market panic and basis trade unwind. Indirect bidders typically include foreign central banks and institutions participating through primary dealers or brokers, serving as a gauge of overseas demand.

Direct bidder participation was 12.66%, the lowest since April this year. Direct bidders include hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, representing a measure of domestic U.S. demand.

Primary dealers, who act as buyers of last resort for all unsold supply, received only 4.2% of the allocation, a historic low, highlighting the strength of actual demand.

Financial blog Zerohedge commented:

Following yesterday's unusually strong 3-year Treasury auction, this was another excellent performance. The auction results drove 10-year Treasury yields down from the session high of 4.10% to a low of 4.03%. This move was anticipated given the day's significantly lower-than-expected PPI data.

The next question is whether Thursday's CPI will confirm the disinflationary trend, potentially driving the Federal Reserve toward a substantial 50 basis point rate cut at next week's meeting.

Bloomberg noted:

Wall Street banks were nearly shut out of the U.S. Treasury's 10-year note auction on September 10th.

The 25 primary dealers received a record-low 4.2% of the $39 billion auction. Primary dealers are designated by the Federal Reserve and are expected to participate in all Treasury auctions. This represents the smallest amount awarded to primary dealers in a 10-year note auction since the Treasury began publishing bidding participation data in 2003.