Low Global Rates Drive Record Demand for U.S. Treasuries

Normally, the monthly auctions of U.S. Treasuries don’t warrant much attention. Last week was a bit different, however, as record interest from foreign buyers helped spur demand for the newly issued bonds and drove yields sharply lower. On Wednesday, the $20 billion 10-year Treasury note offering saw a record share go to non-U.S. buyers. Thursday’s 30-year bond sale saw similar demand. Sixty-five percent of the auction went to foreign buyers, up from an average of 60.1% in the past eight sales. Low rates around the world are likely the culprit for the increased demand. A continuation of the quantitative easing programs in Europe and Japan has driven yields in those regions to record lows. As can be seen in the chart below, German 10-year bunds are yielding about 0%. In Japan, 10-year JGB yields are -0.17%. Compared to these rates, U.S. 10-year yields (now at 1.63%) are looking quite attractive. Low rates overseas, coupled with a continuation of the sluggish economic growth here at home, are the main reasons for our continued expectation of range-bound Treasury yields.

Source: Bloomberg, WSJ