Auction Preview: US to sell USD 39bln of 10-year notes at 17:00GMT/13:00EDT

US 10YR NOTE AUCTION RECENT HISTORY:

• High Yield: (prev. 4.177%, six-auction avg. 4.138%)
• Tail: (prev. 1.4bps, six-auction avg. 0.3bps)
• Bid-to-Cover: (prev. 2.39x, six-auction avg. 2.48x)
• Dealers: (prev. 13.4%, six-auction avg. 10.3%)
• Directs: (prev. 22.1%, six-auction avg. 20.3%)
• Indirects: (prev. 64.5%, six-auction avg. 69.3%)

Preview: 

The US will sell USD 39bln of 10-year notes at a time of heightened market volatility amid the ongoing US/Iran conflict. Yields across the curve have risen since the start of the war as oil prices surged in response to the escalation in the Middle East, but moves have been more pronounced in the front end than the long end. The 10-year yield has risen from 3.926% pre-war, to a peak of 4.216%, but now trades at 4.167%, slightly below last month's auction high yield.

There was a key development on Monday after US President Trump suggested the conflict could end soon, prompting a sharp reversal in crude prices. Brent crude fell from USD 119/bbl overnight on Monday to lows of USD 81/bbl, and now trades just below USD 90/bbl. The pullback in oil has helped ease some of the inflation concerns tied to the conflict, although the situation remains highly fluid and crude prices remain above pre-conflict levels. Oil prices have also been pressured on expectations of the IEA SPR release, which ultimately confirmed a 400mln bbls reserve release, but the reaction has been choppy. 

The surge in oil had seen traders push back Fed rate cut expectations, although markets are now again pricing the first rate cut by September. Prior to Trump's comments, a cut had not been fully priced until October. Alongside geopolitical tensions, participants are also increasingly wary of a slowing labour market following the weak February NFP report, which raised questions about the recent stabilisation in employment. 

Meanwhile, corporate issuance had slowed as bond volatility has increased, with issuers likely waiting for more stable conditions before entering the market. The MOVE index rose from 64 at the end of February to a peak of 81.25 last week, the highest level since November 2025 and well above the YTD low of 55.65. However, after Trump's comments about ending the war on Monday, several issuers entered the market on Tuesday, notching the largest day on record for corporate issuance, supported by the USD 25-30bln from Amazon (AMZN), USD 25bln from Salesforce (CRM) and USD 16bln from Honeywell (HON).  

Given the elevated volatility backdrop, there is a risk of softer demand at today’s auction. Meanwhile, this auction is on the back of a very weak 3-year auction, where yields were more attractive when compared to the prior, suggesting participants may have been waiting on the sidelines given the ongoing volatility. However, with the longer end of the curve less susceptible than the front end in response to crude price action, investors may prefer the longer-end auctions this week.

Another factor to consider is Amazon's bond sale saw over USD 125bln of offers, highlighting strong demand for fixed income, but the 10-year corporate bond's initial pricing thoughts were at 100bps over the 10-year yield. Given the size and health of Amazon, investors may prefer the additional spread offered in the corporate market. 

This week also sees the release of PCE data, which could add further volatility. However, given the market's current focus on oil prices and geopolitical developments, the data may be viewed as somewhat stale as it will not yet reflect any inflationary impact from the conflict, but of course will still be important for bond traders. The CPI data today, for example, came in line with expectations, but yields have been ticking higher since.