Investors flocked to US Treasury auctions on Tuesday, aiming to secure higher yields as the market anticipates an aggressive stance from the Federal Reserve in terms of interest-rate cuts in 2024. In a record-breaking move, indirect bidders, including foreign central banks, secured 77.6% of the Treasury’s 52-week bill auction. The same category also claimed 71.6% of the department’s six-month offering, marking the third-largest share to date. Additionally, a two-year debt sale priced below its when-issued yield, indicating stronger-than-expected demand.
As of Wednesday’s Asian open, the yield on two-year Treasuries remained relatively unchanged at 4.35%. Meanwhile, the 10-year yields of Australia and New Zealand declined after markets reopened post-Christmas.
Traders are increasingly betting on rate cuts in 2024, with expectations of approximately 150 basis points of cumulative easing, as indicated by Fed swaps pricing. This momentum has grown since policymakers updated their forecasts this month, revealing a plan to reduce rates by a total of 75 basis points next year—a faster pace of cuts than suggested in their previous projections in September. Consequently, investors are seizing opportunities in longer-dated bills to secure prevailing yields before the central bank begins its easing measures.
Gennadiy Goldberg, Head of US Interest Rates Strategy at TD Securities, commented on the strong bill auction results, noting that investors seem eager to extend duration amid concerns that the Fed will initiate rate cuts very soon.
The Treasury’s six-month offering yielded 5.08%, while the 52-week sale yielded 4.595%, the lowest since April and approximately 75 basis points below the current fed funds rate. Additionally, the department successfully sold $75 billion of three-month bills at 5.26%. Moving further along the curve, a $57 billion auction of two-year notes was awarded at 4.314%, the lowest for this maturity since May.
The market faces its next challenge with upcoming sales of longer maturities, including five-year notes on Wednesday and seven-year notes on Thursday.
