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Markets

Yields fall after first 20-year bond auction in decades

The benchmark 10-year yield was last down 2.9 basis points at 0.6818%, slightly below its level before the sale res
20 May 2020
  • The benchmark 10-year yield was last down 2.9 basis points at 0.6818%, slightly below its level before the sale results were announced and extending a decline from Tuesday's late levels.
  • The market was shunning the new kid, according to Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee,.
  • The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last down 1.2 basis points at 0.1613%.

CHICAGO: US Treasury yields slipped on Wednesday after the first auction of 20-year bonds in decades was met with "decent" demand.

The benchmark 10-year yield was last down 2.9 basis points at 0.6818%, slightly below its level before the sale results were announced and extending a decline from Tuesday's late levels.

For the first time since 1986, the US Treasury sold $20 billion in 20-year bonds at a high yield of 1.22%. The bid-to-cover ratio, a metric of overall demand, was 2.53. Primary dealers, who must absorb any supply not bought by direct and indirect buyers, took 24.6% of the deal.

The market was shunning the new kid, according to Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee,.

"It will likely take 3-4 months or a significantly steeper curve to fold new (20-year bonds) better into the Treasury complex...to where they're no longer just the kid brother of the 30-year (bonds)," he wrote in commentary following the auction.

The auction was "pretty decent" even though there was a small tail, said Subadra Rajappa, head of US rates strategy, Societe Generale in New York, referring to the slightly lower, when-issued yield of 1.215% heading into the auction.

More 20-year bonds are coming as a total of $54 billion is expected over three months. Rajappa said the question will be "how much demand you're going to see on a consistent basis."

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last down 1.2 basis points at 0.1613%.

Bids submitted in a Wednesday morning overnight repurchase agreement (repo) operation totaled $7 billion, according to the New York Federal Reserve, which said it accepted all the bids.