10-y Bond Auction / 30-y Bond Auction
The 10-year Bond Auction and 30-year Bond Auction, announced monthly by the U.S. Federal Reserve (FED), are auctions of U.S. Treasury bonds with maturities of 10 years and 30 years. However, the 10-year bonds tend to be more popular than the 30-year ones. So, what do these announcements mean? Do they affect gold prices? And what should traders focus on? Let’s find out.
What are the 10-year Bond Auction and 30-year Bond Auction?
It is the auction of bonds by the U.S. Department of the Treasury. The measurement covers two main parts:
Part 1 is the highest yield of the bonds sold in the auction.
Part 2 is the bid-to-cover ratio and/or the amount of bonds sold.
At this point, I believe many people are still confused about these two parts, right? So let me explain further, starting with the first part. Let’s think about why bonds are considered an investment. Of course, when you invest in bonds, you expect to earn a profit or return, which is the “interest.” You receive interest payments periodically, depending on the terms—it might be yearly based on how long you hold the bond. The interest rate is usually better than a fixed deposit, and you can also sell the bond back to get your principal when it matures.
For the second part, imagine you’re participating in a bond auction where the bonds have a value of $100, but the total bids offered amount to $200. The bid-to-cover ratio is calculated as: bid amount divided by bonds sold, so 200/100 = 2.0 (this is called the Bid-to-Cover Ratio). This means that for every $1 of bonds available, there are $2 worth of bids. Therefore, a higher Bid-to-Cover Ratio indicates stronger demand exceeding the value of bonds being sold. Conversely, a lower Bid-to-Cover Ratio suggests less investor interest.
Does it have an impact on gold?
Definitely. Simply put, if the 10-year or 30-year Bond Auction yields are low, investors tend to lose interest and shift their investments more towards gold. However, if the 10-year or 30-year Bond Auction offers attractive returns, investors may pay less attention to gold.
What should traders focus on?
During the auction, investors are the ones who submit their yield bids. Therefore, it can indicate investor sentiment, the debt level of the bond issuer, and the liquidity condition in the bond market.
