After last week’s catastrophic 30Y auction, traders were keeping a close eye on today’s sale of $23BN in 20Y bonds to see if it too would suffer from lack of demand following last week’s historic CPI print.
As Bloomberg’s Alyce Anders wrote ahead of the auction, the Fed and the Treasury “have done everything they can to support the doggy 20-year sector. The lack of a concession today and a well advertised relative value set up might mean the $23 billion offering should go fine even if it tails. That’s because the government cut its issuance size and the Fed left its new purchase schedule for 10-year to 22.5-year Treasuries untouched despite tapering Treasury buybacks by $10 billion per month.”
As she also noted, since the bond market is not selling off today it might be that a tail is required to soak up the supply, and that’s precisely what happened when moments ago the Treasury revealed that the high yield on today’s $23BN sale of 20Y paper was 2.065%, slightly below last month’s 2.100%, but tailing the When Issued 2.051% by 1.4bps. Still, this tail was smaller than October’s 2.5bps tail which was the largest since the 20Y tenor was introduced last May.
The Bid to Cover also improved from last month’s 2.25 rising to 2.34, right on top of the six-auction average.
The internal were slightly weaker with Indirects taking down 60.2%, down from 64.8% last month and the lowest since May 2021; as a reference the recent average was 61.7%. And with Directs taking down 19.4%, Dealers were left holding 20.4% the most since Julye’s 20.9% and above the recent average of 19.6%.
Overall, this was a poor auction but it could have been much worse, and the market seems to agree: after initially spiking on the news of the auction, the 10Y yield has since dipped back to session lows just above 1.60%
