Solid Demand at U.S. 20-year Treasury Bond Auction Supports Market Tone

The much-anticipated completion of today’s $16 billion 20-yr bond auction met solid demand. The sale drew a high yield of 4.780%, which stopped through the when-issued yield by a basis point while the bid-to-cover ratio (2.58x) was shy of average (2.66x) indirect takedown (74.0%) was comfortably above average (71.3%). The 5-yr note and longer tenors turned positive while shorter tenors rose off their lows but remain in negative territory. The desk gave an A- rating on the auction. Equities rose to new highs in with the S&P 500 gaining 0.6% with the Nasdaq +1.0%.

Today’s action was in direct contrast to the previous 20-year action where U.S. Treasuries sold off, lifting lifted yields on all tenors to fresh highs for the year after the completion of a dismal $12 billion 20-year Treasury bond reopening, which was met with lukewarm demand. The high yield tailed the when-issued yield by 2.5 bps with the bid-to-cover ratio 2.50x. The desk gave a F rating on the auction. The US 30-year fixed mortgage rate hits a 20 year high of 7.22% today on the surge in the 10-year yield. The S&P 500 and Nasdaq 100 are near the low for the week ahead of the Fed Beige Book.

  • The domestic demand was below its six-month average indicative of softer domestic demand
  • International demand (indirect) was also comfortably above the six-month average
  • Primary dealers were left with just over than 10% versus normal around 14.3%

Auction Highlights

  • Duration: 20 Years
  • Amount:  $16 billion
  • High yield: 4.780%
  • When-Issued WI: 4.790%
  • Stopped through the when-issued yield by a basis point
  • Bid to cover 2.58X vs. six-month average of 2.66X
  • Directs 16.5% vs. six-month average of 18.9%
  • Indirects 74.0% vs six-month average is 71.3%
  • Dealers 9.50% vs six-month average of 9.8%

Auction grade: A-

Yields after the auction.

  • 2-yr: +3 bps to 4.93%
  • 3-yr: +1 bp to 4.65%
  • 5-yr: -1 bp to 4.44%
  • 10-yr: -2 bps to 4.43%
  • 30-yr: -3 bps to 4.57%

Yields before the auction.

  • 2-yr: UNCH at 4.90%
  • 3-yr: UNCH at 4.64%
  • 5-yr: +2 bps to 4.47%
  • 10-yr: +2 bps to 4.46%
  • 30-yr: +1 bp to 4.61%

Prior auction results:

  • High yield: 5.245%
  • Bid-to-cover: 2.59
  • Indirect bid: 72.9%
  • Direct bid: 15.2%

Average results of previous 12 auctions:

  • High yield: 4.152%
  • Bid-to-cover: 2.66
  • Indirect bid: 71.3%
  • Direct bid: 18.9%

Live From the Pit

From The TradersCommunity US News Desk