Yields move lower ahead of 20-year bond auction

CHICAGO: U.S. Treasury yields fell on Wednesday as the market awaited the auction of $25 billion of 20-year bonds that could test its the market's appetite for supply at the longer end of the curve.

The benchmark 10-year yield was last down 1.2 basis points at 0.6574pc, while the 20-year yield was last down 1.8 basis points at 1.133pc.

The auction marks the fourth and largest since the U.S. Treasury began offering 20-year bonds in May for the first time since 1986.

It also follows last week's auction of $26 billion of 30-year bonds that was met with weak demand.

"Given the extra size, given that the valuation looks fair, not particularly cheap, and given we just came off a 30-year auction that kind of underperformed, I think there's some potential for this one to also be a slightly weak auction as opposed to a strong one," said Tony Rodriguez, head of fixed income strategy at Nuveen.

The market will also be looking at the minutes from the Federal Reserve's July meeting that will be released at 2 p.m. ET (1800 GMT) for clues into the policymaker's view of the economy and actions they may take in September.

Rodriguez said there might be some valuable information disclosed concerning the Fed's policy framework review, which is expected to include inflation targeting.

"There may be something in the minutes that provides a little bit more color around their thinking beyond what we've heard in some of the speeches since the last meeting," Rodriguez said.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is viewed as an indicator of economic expectations, was last at 51.10 basis points, about a basis point lower than at Tuesday's close.