A $23bn dollar sale of 10-year US government debt failed to drum up robust demand, with analysts pointing to a strong morning rally in the market making the price of the notes less enticing at auction.

10-year US Treasury yields, which move inversely to price, dropped 7 basis points to 2.32 per cent by the afternoon auction time, running close to 2017 lows. Investors expectations that this big morning fall was unlikely to go much further meant buying at auction would be costly, forcing the US government to pay a higher yield of 2.33 per cent to encourage buying.

The primary dealers responsible for underwriting the debt sale took home 30.6 per cent of the allocation, 5 per cent higher than usual.

“It seemed to be largely about pricing,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. “No one wants to put in an aggressive bid when you are at the low yield mark for the session. The balance of risks was not tilted toward a continued rally.”

There has been strong demand for US Treasuries in recent days as investors seek out haven assets amid political wrangling for the new US administration and a sense that some of the pro-growth economic policies that have boosted markets since the US election could get delayed.

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