20-Year Treasury Auction Shows Strong Demand. Bond Buyers See Opportunity.

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The latest auction of longer-dated government debt showed strong demand from yield-hungry buyers, potentially helping to allay concern among investors following weak sales of Treasuries last week.

The highest yield, or return, accepted by investors at a Wednesday auction of
20-year Treasury
debt was 5.245%. That was lower than the yield of 5.26% seen leading up to the auction, according to Tradeweb data.

That is a good outcome, indicating healthy demand for the 20-year debt. It means the government didn’t have to entice investors with a premium over the market rate on bonds to have them buy the debt.

Another positive indicator was the intake by dealers. Dealers, who buy up supply not taken by bidders, had to accept 11.9% out of the $13 billion 20-year bonds sold. That’s only slightly higher than the average of 9.8% dealers have had to take for 20-year bonds so far this year, according to the Dow Jones Market Data team.

“Today’s 20-year auction was solid,” wrote Ben Jeffery, a strategist at BMO Capital Markets.

Coming into the sale, investors were concerned. This was the first long-dated bond auction since last week’s sale of 30-year debt pointed to weak demand. Dealers had to take 18.2% of the debt on sale, the highest ratio since February of last year.

The reasons are partly technical. The government has been issuing tons of debt to refill its cash coffers after depleting them this spring, when Congress’s standoff over the debt ceiling prevented the Treasury from selling new bonds. At the same time, the federal budget deficit—spending in excess of revenue—hit an estimated $1.7 trillion in fiscal 2023, higher than the $1.4 trillion last year, according to the Congressional Budget Office.

Ample supplies of bonds tend to drag prices lower, which lifts yields. Bond prices and yields move inversely.

Longer-term economic concerns such as worry about inflation have also been playing on investors’ minds, pushing down prices of 10-year, 20-year and 30-year debt. The yield offered on Wednesday marked one of the highest seen on the 20-year Treasury since the series was reintroduced in the first half of 2020.

“Treasuries are now offering some of the best valuations and highest yields we’ve seen in well over a decade, which appears to have enticed a few more buyers,” said Noah Wise, a senior portfolio manager for the Plus Fixed Income team at Allspring Global Investments.

The yield on the 20-year dipped sharply to 5.198% after the results published on Wednesday—a typical reaction when demand is strong—but recovered to close at 5.228%. The 30-year yield was at 4.993% as of 3 p.m. on Wednesday, its highest for that point in the day since Aug. 17, 2007. The 10-year rose to 4.902%, the highest since July 25, 2007.

All that suggests concerns remain within the fixed-income market.

Write to Karishma Vanjani at [email protected].

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