Rush for 10-year Treasury paper Investors bypassed Wall Street dealers and were record-sized buyers of 10-year Treasury debt on Wednesday at the lowest yields for a government bond auction. In a historic Treasury auction result, the $21bn sale of 10-year paper arrived at the lowest recorded regular auction yield of 1.459 per cent, just above June's all time low of 1.44 per cent for the benchmark issue. The auction result comes as figures show foreign holdings of Treasury debt sitting at record levels of more than $5tn, while separate data from the Federal Reserve show holdings by other central banks standing at an all-time high. The demand for 10-year notes suggests a significant buyer or group of investors expect US interest rates will remain low or fall further for several more years. It also demonstrates that some investors are using Treasury auctions as a vehicle to buy large amounts of bonds, rather than relying on securing such paper via the secondary market. "These low yields are no deterrence for large investors who take advantage of the liquidity the auction process provides," said William O'Donnell, strategist at RBS Securities. We were expecting good auction results but this one has left me speechless. Dealers were left owning just 14 per cent of the $21bn sale, with record buying by investors such as money managers and foreign central banks. This group of buyers elected to purchase the 10-year note directly from the Federal Reserve Bank of New York and bypass banks who underwrite debt sales. The so-called "direct bid," which enables a buyer to remain anonymous, accounted for 45.4 per cent of the sale, much more than the recent average of 17 per cent. Other investors who placed their orders with dealers took 40.6 per cent of the sale. In recent years, direct bidding has become a greater feature of auctions and China, the largest foreign holder of Treasuries, at $1.145tn was recently granted permission to bypass dealers. "This really does challenge the idea of how you can participate in Treasury auctions when you see this type of buying activity away from dealers," said David Ader, strategist at CRT Capital. "Such action is always disturbing to dealers who, in theory, have primary dealer "status" for a reason they can justify." After the sale, the yield on 10-year notes rose to 1.50 per cent. "The dealer community did not see the large buyers coming, yet were not short by the normal degree and hence were not forced to cover," said Richard Gilhooly, strategist at TD Securities.