Strong Domestic Demand in 20-year Bond Auction Reflecting Curve Divergence

U.S. Treasuries curve continues to diverge, shorter-dated Treasuries near their lowest levels of the day while the long bond outperforms, trading just below highs. The 30-yr bond is holding highs after the completion of today’s $12 bln 20-yr bond reopening, which met decent demand but nothing spectacular. The sale drew a high yield of 4.036%, which tailed the when-issued yield by a tenth of a basis point. However, the bid-to-cover ratio (2.68x) was above average (2.62x) while indirect takedown (68.8%) was shy of average (72.0%). Equities have backtracked from their starting highs with the S&P 500 narrowing its gain to 0.2% while the Nasdaq (-0.1%) is now down slightly. The desk gave a C- rating on the auction.

Today’s $12 bln 20-yr bond tailed the when-issued yield by a tenth of a basis point. The desk gave a C- rating on the auction. Domestic demand was strong. International demand was weak. Bid the cover was near the average. 

  • The domestic demand was above its 12-month average indicative of stronger domestic demand.
  • International demand (indirect) was below the 12-month average
  • Primary dealers were left with just under 10% versus normal around 10.3%

Auction Highlights

  • Duration: 20 Years
  • Amount:  $12 billion
  • High yield 4.036%
  • WI 4.035%
  • Tailed the when-issued yield by a tenth of a basis point.
  • Bid to cover2.68 vs. 12-month average of 2.62X
  • Directs 21.7% vs. 12-month average of 17.7%
  • Indirects 68.8% vs 12-month average is 72.0% 
  • Dealers 9.5% vs 12 -month average of 10.3%

Auction grade: C-

Yields after the auction.

  • 2-yr: +1 bp to 4.77%
  • 3-yr: +1 bp to 4.36%
  • 5-yr: UNCH at 4.00%
  • 10-yr: -3 bps to 3.76%
  • 30-yr: -4 bps to 3.86%

Prior auction results:

  • High yield: 4.010%
  • Bid-to-cover: 2.87X
  • Indirect bid: 74.6%
  • Direct bid: 17.6%

At the prior auction equities sold off with Fed Chairman Powell testimony before the House Financial Services Committee. In his prepared remarks, Powell said that “there is still a long way to go” in reducing inflation and that policymakers expect more rate hikes this year The main indices trade above their lows with the S&P 500 down 0.5% while the Nasdaq down -1.1% underperforms.

Average results of previous 12 auctions:

  • High yield: 3.873%
  • Bid-to-cover: 2.62
  • Indirect bid: 72.0%
  • Direct bid: 17.7%

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