Market firmly believes that the Federal Reserve will cut interest rates this year, leading to a surge in demand for two-year US Treasury bond sales and record overseas buying

On Tuesday local time, the U.S. Treasury auctioned $69 billion in two-year Treasury notes, with strong auction results, high market demand, and record overseas buying. The winning yield for this 2-year U.S. bond auction was 4.434%, significantly lower than the 4.706% on June 25, a difference of 27.2 basis points. The winning yield for this 2-year U.S. bond auction also hit the lowest level since January this year. The winning yield was 2.3 basis points lower than the pre-issued rate of 4.457%, marking the second largest difference between the two on record, second only to March 2023, highlighting strong market demand. The bid-to-cover ratio for this 2-year U.S. bond auction was 2.81, higher than the 2.75 from last month, reaching the highest level since August 23 last year, and significantly higher than the six-month average of 2.58. As an indicator of U.S. domestic demand, the allocation ratio for direct bidders, including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, was 14.4%, the lowest since January this year. Overseas demand was extremely strong. As an indicator of overseas demand, the allocation ratio for indirect bidders, typically foreign central banks and other institutions participating through primary dealers or brokers, was as high as 76.6%, surpassing June's 65.6% and hitting a historical high. As the "buyer of last resort" who takes on all unsold supply, primary dealers had an allocation ratio of only 9% in this round, reaching a historical low due to the surge in overseas demand. Following the conclusion of the 2-year U.S. bond auction, the yield on 2-year U.S. bonds declined, and the 10-year U.S. bond yield also fell to an intraday low. Analysts suggest that the Federal Reserve will hold an FOMC meeting next week, with the market generally expecting a rate cut in September, prompting a frenzy of inflows into short-term U.S. bonds before the rate cut