Ugly 10Y Auction: Foreign Demand Plummets, Directs Soar, Resulting In Biggest Tail Since February

After a subpar 3Y auction on Monday, today's 10Y auction - which followed another hot CPI print - was downright ugly.

Let's start at the top: the high yield of today's auction was 5.020%, which hit just as yields hit their peak for the day, with the 10Y rising more than 10bps above 5.0% for the first time in weeks. Still, this was a drop from last month's 5.317% (which was the highest in over 2 decades), but tailed the When Issued 5.010% by 1 basis point, the biggest tail since February. And with the auction pricing north of 5%, the coupon on the auction would be 5%, the highest since 2006. 

The bid to cover was also ugly: sliding to 2.468 from 2.771, this was the lowest coverage since May. 

But the internals were even uglier: Indirects plunged from a near record 80.3% in October to just 61.2%, the lowest since October 2023, as foreign buyers staged a bit of a strike.

It meant that someone else would have to step up, and sure enough, Directs soared from 17.1% to 29.0%, the highest since September 2013!

Dealers were left holding 9.77%, the most since May.

Overall, this was an ugly auction...

... easily on of the ugliest of 2026, and all it took was one hot CPI print and two hawks to put bonds back in the driver’s seat, and that's even ignoring the AI trade being back and once again draining demand for duration after a month of IG issuance that has blown away all records.

And since all key catalysts until the December rate hike are now done (except Friday's PPI which we don't expect will be much better), expect even more ugly auctions in the coming weeks.