By Benjamin Picton, senior market strategist at Rabobank
US sovereign yields steadied yesterday as a 10-year bond auction saw strong investor demand. $39bn of bonds were sold with a high yield of 5.30% with a bid to cover ratio of 2.77x and low primary dealer takedown. The result signals that investors are beginning to view government debt as attractive at current levels and eased fears of a disorderly correction in bond prices that had been sparked by a poor 5-year auction in late September that saw the second-longest tail on record.
Relative valuations may be playing a role here as US equity indices pulled back from record highs. US equity market breadth is remarkably narrow, with AI-adjacent tech megacaps leading indices higher in recent times as many other sectors struggle for traction. The AI narrative had a wobble yesterday as SpaceX 5-year CDS spreads widened by 16.5bps to 197bps. That follows news that the company is seeking to raise $40bn in fresh debt financing to buy NVIDIA chips, with similarly large deals also in the works for Broadcomm ($50bn) and Oracle.
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