As per the graph below, although indirect bidders increased sensibly since the disastrous 7-year auction of last month, demand is still the lowest since August 2019. The reason why we continue to see weak foreign demand might lay within conflicting Federal Reserve Monetary policies. On one side, the Fed remains supportive of the yield curve’s front end. On the other, it leaves the long part of the curve free to fluctuate, making it vulnerable to higher inflation expectations.
We believe that US Treasuries’ demand will most likely pick up when 10-year yields hit the pivotal level of 2%, driven by strong economic growth and higher real yields.