Treasury’s $13 billion auction of 20-year government bonds on Wednesday, seen as a key test of investor demand, came in stronger than expected, which in turn led to a less-pronounced selloff of long-dated government securities during the New York afternoon.
Ben Jeffery, a strategist at BMO Capital Markets, said the sale produced “a good result” and was “solid” — with indirect bidders, who placed competitive bids through primary dealers, being awarded 72.9% versus an average of 70.1%. Tom di Galoma, co-head of global rates trading for BTIG in New York, described the auction as “well received.”
Long-dated yields pulled back after the 20-year auction, but still ended higher for the day. The 30-year Treasury yield
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slipped below 5%, after having pierced that level Wednesday morning. The benchmark 10-year yield
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ended New York trading at a 16-year high of 4.902%, after having touched an intraday high of 4.93%.
A string of stronger-than-expected U.S. data, including Tuesday’s retail sales report for September, has confounded analysts and triggered a round of upward revisions to third-quarter economic growth on Wall Street. Morgan Stanley now expects a 4.9% rate for that period, up from 4.5% previously. The economy remains resilient despite the geopolitical risks being created by the Israel-Hamas war and the Federal Reserve’s decision to step away from the Treasury market via the process known as quantitative tightening.
“Greater supply in general of Treasury issuances and the Fed’s QT have been the drivers of the selloff in long-dated Treasurys and one of the triggers for bear steepening,” said Daniel Tenengauzer, a New York-based strategic adviser for the financial technology firm called bondIT. Bear steepening refers to a trading environment in which long-term rates are increasing at a faster rate than short-term ones.
However, “the 20-year bond trades particularly cheap compared to both the 10-year and 30-year,” which may have been why it was so appealing to investors on Wednesday, Tenengauzer said via phone. “This doesn’t change the view that, in general, Treasury is going to have a more challenging time issuing long-term maturities in the market.”
All three major U.S. stock indexes
DJIA
COMP
closed lower on Wednesday as 10- and 30-year Treasury yields finished at their highest levels again since July-August of 2007. As of Wednesday, 10- and 30-year rates have jumped 161.7 and 157.9 basis points, respectively, from their 52-week lows seen on April 5 and Dec. 7.
