US Treasury’s $42B 10-Year Auction Shines, Erasing Fears of Waning Demand — Evening Brief – 05.06.25 

One month after speculation swirled that U.S. Treasuries were losing their status as the world’s safest asset class, driven by coordinated selling by China and basis trade unwinds, the market narrative has shifted. Concerns over collapsing demand proved short-lived as the U.S. Treasury successfully auctioned $42 billion in 10-year notes, delivering a stellar result and prompting Treasury yields to slide. 

The auction closed with a high yield of 4.342%, down from 4.435% in April, marking the second lowest yield of 2025. Contrary to fears of fading appetite for Treasuries, the auction stopped through by 1.2 basis points, outperforming pre-auction When Issued trading (4.354%)—marking the third straight stop-through and the fifth in the last seven auctions. 

The bid-to-cover ratio came in at 2.604, slightly below April’s 2.665 but still the second highest of 2025, exceeding the six-auction average of 2.59. 

Despite last month’s record low participation from Direct Bidders, foreign buyers (Indirects) continued to dominate, claiming 71.2% of the auction—down from April’s record-breaking 87.9% but still one of the highest on record. 

Meanwhile, Direct Bidders rebounded, securing 19.9% of the auction, a sharp rise from April’s dismal 1.40%—a figure widely regarded as the weakest aspect of last month’s auction. With this normalization in Direct demand, last month’s volatility looks increasingly like an anomaly rather than a trend. Dealers, meanwhile, were left holding only 8.9%, the second lowest on record—an indication of robust demand elsewhere. 

Unlike the April 10-year auction, which was plagued by near-zero liquidity and heightened uncertainty, the latest issuance saw stronger market stability. However, pre-auction nerves persisted, with many traders anticipating another wave of selling pressure. Instead, the auction’s strength triggered a sharp decline in yields, forcing short positions to cover, bringing 10-year yields to session lows of around 4.30%. 

While skepticism over U.S. Treasuries remains part of the broader financial discussion, the May auction suggests resilience in demand, particularly from foreign investors. The shift from last month’s low Direct Bidder participation to a more balanced allocation suggests that liquidity remains intact, and fears of sustained disorder may have been overblown. 

The question now is whether June’s auction will continue this trend of normalization, or if broader macroeconomic factors—including Chinese policy shifts, Federal Reserve positioning, and global trade uncertainty—will lead to renewed volatility.