Soft Demand at U.S. 20-year Treasury Bond Auction with Strength in Shorter Tenors

Today’s $16 billion 20-yr bond auction met weak dollar demand, a high yield of 4.213% tailed the when-issued yield by 1.5 basis points with 2.55 bid-to-cover ratio that trailed the prior 12-auction average of 2.65. Philadelphia Fed President Harker (2023 FOMC voter) believes rates should move lower, but not right away, according to Bloomberg. The desk gave a C+- rating on the auction. That said the market catered well with some safety trades put on in front of the extended Christmas weekend with geopolitical issues sin the Red Sea hitting oil and currency markets.

Of note the 10-yr note yield, which settled 2022 at 3.88%, is back to 3.88% today. It was just mid-October when the 10-yr note yield hit 5.02% intraday.

  • The domestic demand was above its six-month average indicative of stronger domestic demand
  • International demand (indirect) was comfortably below the six-month average
  • Primary dealers were left with just under 13% versus normal around 9.8%

Auction Highlights

  • Duration: 20 Years
  • Amount:  $13 billion
  • High yield: 4.213%
  • When-Issued WI: 4.198%
  • Tailed the when-issued yield by 1.5 basis points.
  • Bid to cover 2.55X vs. 12-month average of 2.65X
  • Directs 20.7% vs. 12-month average of 19.0%
  • Indirects 66.4% vs 12-month average is 71.2%
  • Dealers 12.90% vs 12-month average of 9.8%

Auction grade: C+

Yields after the auction.

  • 2-yr: -5 bps to 4.40%
  • 3-yr: -2 bps to 4.11%
  • 5-yr: -3 bps to 3.90%
  • 10-yr: -2 bps to 3.90%
  • 30-yr: -2 bps to 4.02%

Yields before the auction.

  • 2-yr: -6 bps to 4.39%
  • 3-yr: -4 bps to 4.09%
  • 5-yr: -2 bps to 3.91%
  • 10-yr: -1 bp to 3.91%
  • 30-yr: -1 bp to 4.03%

Prior auction results:

  • High yield: 4.780%
  • Bid-to-cover: 2.58
  • Indirect bid: 74.0%
  • Direct bid: 16.5%

Average results of previous 12 auctions:

  • High yield: 4.211%
  • Bid-to-cover: 2.65
  • Indirect bid: 71.2%
  • Direct bid: 19.0%

Live From the Pit

From The TradersCommunity US News Desk