(Bloomberg) -- Bonds rallied — erasing some of the losses caused by last week’s strong employment data — after an auction of 10-year notes drew unusually strong demand despite its proximity to potentially destabilizing events on Wednesday.

The $39 billion 10-year note sale was awarded at 4.438%, compared with a yield of 4.458% in pre-auction trading at 1 p.m. New York time, the bidding deadline. That investors settled for a lower yield indicates excess demand, and yields throughout the market subsequently moved to lower levels. 

Other auction metrics showed that investors captured nearly three-quarters of the sale, the highest for a 10-year auction since February 2023. Though the auction yield was lower than last month’s, it’s still among the highest of the past decade.

“Clearly there is demand” aided by higher yields, said John Madziyire, senior portfolio manager at Vanguard Group Inc. While the auction overcame its proximity to Wednesday’s release of May inflation data and Federal Reserve communications, “you could easily see the bond market get whipsawed” by those events, he said.

Yields in the 10-year sector climbed from under 4.30% over the past week amid strong economic data capped by the May jobs report on Friday. JPMorgan Chase & Co.’s Treasury client survey for the week ended June 10 found the lowest level of optimism in two months.

Shorter-dated Treasury yields declined less as the inflation data threaten to further erode confidence in Fed interest-rate cuts beginning this year. The growth rate of consumer prices continues to exceed the central bank’s 2% target, and there’s been scant evidence that interest rates are constraining the economy. 

The Fed meeting later Wednesday will include policy makers’ latest quarterly economic and interest-rate projections. As of March, the median forecast was for three quarter-point cuts in 2024, but since then, expectations implied by swap contracts have declined to price in just 36 basis points of easing by December and an only 80% chance of a quarter-point cut in November. 

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