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Benchmark 10-year Treasury yields plummeted on Wednesday to their lowest closing level since last summer, as the bond market continued to defy expectations that yields would drift higher this year. The 10-year yield (10_YEAR) yield, which falls as prices rise, sank 7.5 basis points to 2.443%, its lowest close since late June, according to Tradeweb. The benchmark yield has dropped 21 basis points this month, according to FactSet, putting it on track for its biggest monthly drop since January, amid speculation about the pace of global economic growth, how it will impact central bank monetary policies, and which large buyers are stepping in snap up debt.

The market held on to Wednesday’s price gains after a strong reception to a sale of new U.S. debt supply.

The 30-year bond (30_YEAR) yield dropped 7.5 basis points on Wednesday to 3.293%, while the 5-year note (5_YEAR) yield fell 4.5 basis points to 1.481%.

The iShares 20+ Year Treasury Bond ETF (TLT) jumped 1.2%.

Junk bonds did not fare as well. The SPDR Barclays High Yield Bond ETF (JNK) fell 0.02% Wednesday. Read: Consider this before you jump on the junk-bond bandwagon

While Wall Street strategists have chalked up recent gains in the bond market to a number of factors, technical positioning by investors has been noted as a key factor exacerbating the rally. Market participants who have been shorting the market have continued to get caught on the wrong side of the trade, forcing them to buy back into the market, pushing prices higher.

“The participants in the market have been so offsides,” said Michael Cullinane, head of Treasury trading at D.A. Davidson & Co. “You can look at a lot of different reasons for the market rallying and I supposed they all have some shred of rationality to them, but the market has moved a lot more and a lot faster than they would suggest.”

Investors continued to build up positions, with the J.P. Morgan Treasury survey of all clients showing the fewest neutral positions since October 2010. Long positions increased by 7% while short positions increased by 11%, according to the survey.

Wednesday rally

Some of Wednesday’s rise in Treasury prices was attributed to month-end buying, particularly as the new supply of other types of debt has fallen, according to Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets.

Treasury prices began rising earlier in the session after a report showed that the German unemployment rate unexpectedly rose in May. European markets are awaiting a decision on whether and how the central bank will ramp up monetary accommodations, which it suggested it would implement next month. Also read: ECB’s Mersch signals the central bank is ready to act

The 10-year German bond, or bund, yield dropped 5 basis points on the day to 1.287%, while the U.K. 10-year bond, or gilt, yield fell 9 basis points to 2.550%.

“What started with a euro bond move overnight has now seen stops being hit in the U.S.,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities, in a note to clients.

Two auctions

The Treasury Department sold $35 billion of 5-year notes Wednesday at a high yield of 1.513%. Although that yield was slightly higher than where the broader market was trading at the time, it marked the lowest auction yield since November.

Bidders offered to buy 2.73 times the amount of debt for sale, matching the average during the past six sales. Indirect bidders, which often include foreign investors, bought 50.4% of the sale, compared with a recent average of 44.5%. Direct bidders, which include domestic money managers, bought another 10.5%, compared with 14.0% in recent sales.

At the same time, the Treasury offered $13 billion of 2-year floating-rate notes in its fifth sale of such securities. The notes sold at a premium of 0.063% above 3-month Treasury bills (3_MONTH), upon which the floating rate resets.

The level of both direct and indirect bidders was above average. Indirect bidders took down 41.7% of the sale, compared with the average of 36.1% in the first four sales. Direct bidders took down 9.4% of the sale, compared with 5.9% in the prior auctions. Bidders offered to buy 4.69 times the amount of debt for sale, compared with the average of 5.07 times.

By Ben Eisen, MarketWatch