The U.S. Treasury sold $35 billion in 10-year notes Monday at a high auction yield of 3.33%, although bidders shied-away from the re-opened issue that comes just ahead of a key reading of August inflation.
Investors bid $2.37 for every $1 of 10-year notes on offer from the Treasury, auction data indicated, a notably softer tally than the 2.57 'bid-to-cover' ratio recorded at the last auction on August 10, when the yield was just 2.755%, and the recent average of 2.45.
Prices and yields in the bond market move in opposite directions, making today's paper much cheaper than it was in early August.
Foreign buyers, the data indicated, took down around two thirds of the sale, down from the 75% figure reported in August and the recent average of around 67%.
Direct bidders, which represent domestic demand, took up the slack, taking down 17.9% of the sale, just ahead of the six-month average of 17.7%.
Stocks were little-changed in the wake of the auction results, with the Dow Jones Industrial Average marked 235 points higher on the session and the S&P 500 rising 40 points.
Benchmark 10-year notes were holding at 3.325% in the wake of the auction, while 2-year notes were pegged at 2.553%.
The Commerce Department will publish August inflation data on Tuesday, with economists looking for a month-on-month decline in consumer price pressures, taking the annual rate down to around 8.1%.
Inflation is often referred to as the 'enemy of bonds', as it erodes the value of fixed income payments, so buyers would likely be reluctant to participate in today's auction given the uncertainty of Tuesday's CPI release.
Demand may have also been tempered by the recent slide in the U.S. dollar, which has corresponded to a sharp rise in the euro following last week's hawkish European Central Bank rate decision.
The dollar index, which tracks the greenback against a basket of six global currencies, was marked 1% lower from Friday's closing levels to trade at a two-week low of 107.942 in overnight dealing.
The moves extended a 2.5% decline for the dollar since it reached a fresh 20-year high last week, thanks in part to both interest rate signaling from the European Central Bank and hints at foreign exchange market intervention from the Bank of Japan to support the slumping yen.
U.S. bond markets are also navigating the impact of the Federal Reserve's ongoing asset sales, which are adding at least $60 billion in Treasury bonds to the market each month -- double the pace of the summer -- as the central bank unwinds its $8.9 trillion balance sheet alongside is interest rate hikes.
