US debt has endured a difficult test! The bid for 20-year treasury bonds was better than expected, and overseas demand was strong

wallstreetcn ·  11/21 07:37

Source: Wall Street News

The US Treasury bid for 20-year US bonds worth 16 billion US dollars and won an interest rate of 4.780%, a marked decline from a record high of 5.245% on October 19 last month. The bid multiplier was 2.58, compared to 2.59 previously. The allocation ratio for indirect buyers, including official institutions such as overseas central banks and private investors, was 74%, the highest since June.

On Monday, November 20, the US Treasury held a bid sale of 16 billion US dollars of 20-year US bonds, which attracted much attention from the market. Due to Thanksgiving in the US this week, trading hours throughout the week have been shortened. Plus, market demand for 20-year US bonds is already far inferior to that of 10-year and 30-year treasury bonds. The auction of 20-year US bonds is considered a major test for the bond market.

The final results gave the market a sigh of relief. The final bid interest rate was 4.78%, a sharp drop from October. This is also the first time since March that the yield on the 20-year US Treasury bond auction has declined month-on-month, and is still below the 4.79% pre-sale yield.

The bid multiplier for this sale was 2.58, which was roughly the same as 2.59 in October. In June, it reached a record high of 2.87, and the average for the most recent times was 2.67. Judging from the bid multiplier data, although not very impressive, it is quite stable.

Overseas demand is the highlight of this bid, highlighting the recovery in demand. The allocation ratio for indirect buyers, including official institutions such as overseas central banks and private investors, reached 74.0%, the highest level since June this year, far higher than the recent average of 70.1%.

This time, direct buyers, including the Federal Reserve and other US federal government entities, received 16.5%, up from 15.2% in October, but below the recent average of 19.75%.

The allocation ratio for Tier 1 traders was 9.5%, which is below the average of the six auctions of 10.2%. Four of the past six auctions were similarly below 10%. First-tier traders must fully accept treasury bond issues when there are no buyers to avoid streaming, so the allocation ratio of this group of buyers reflects real demand: the lower the ratio, the stronger the real demand.

This year, long-term US debt auctions experienced a “failure to sell” situation several times, causing the bond market to plummet. Concerns spread to US stocks, and the decline followed. Therefore, long-term US debt auctions have become the focus of market attention in recent months.

The US Treasury bond market recently began a “huge rebound.” The slowdown in US inflation, the moderate cooling of economic growth, and the less-than-expected increase in the scale of bidding announced by the US Treasury made overseas traders and investors expect that the Fed has completed this round of aggressive interest rate hikes and is expected to switch to interest rate cuts in the middle of next year, with capital pouring into US debt to the bottom.

However, many market participants doubt whether the rebound in US debt will last, and whether the wave of sell-offs has actually come to an end. Earlier this month, the sale of 30-year US bonds was quite weak, and the US Treasury had to offer an abnormally high yield premium to sell the bonds, causing the market to plummet for a short time. The sale of 20-year US bonds, which have traditionally had poor liquidity on Monday, is considered a critical auction that can restore investor confidence. The final auction results were strong, helping to ease some market concerns.

After the latest US bond bidding data was released, the US 20-year Treasury yield dived more than 4 basis points in the short term, reaching a fresh daily low of 4.7696%, and then fell 2.3 basis points throughout the day. Two-year US Treasury yields fell more than 2 basis points in the short term, 10-year US Treasury yields fell by about 4 basis points in the short term, and 30-year US Treasury yields fell by more than 3 basis points in the short term.

US stocks also received a clear boost. The Nasdaq 100 index rose more than 1%, the Dow Jones rose 0.5% during the day, the S&P 500 index rose by more than 0.6%, and the China Composite Index rose 3.66%.


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