The 20-year US Treasury Auction “crashed”, highlighting that weak demand had reached a record high end of interest spreads

wallstreetcn ·  Feb 22 07:08

Source: Wall Street News

On Wednesday local time in the US, the US Treasury auctioned off 16 billion US dollars of 20-year treasury bonds. The results of the auction were bleak, causing US bond yields to rise during the day.

The bid interest rate for the 20-year US Treasury's latest auction is 4.595%, which is significantly higher than the 4.423% in the previous auction. The pre-issue interest rate is 4.562%, which means that the “tail” reflecting weak demand is as high as 3.3 basis points. This is the largest tail spread on US bonds of this maturity since the launch of the 20-year US Treasury bond auction in May 2020, highlighting weak demand.

The bid multiplier for this auction was 2.39, the lowest since August 2022, significantly lower than the previous 2.53, and much lower than the average of the last six auctions of 2.59.

As an indicator of domestic demand in the US, direct bidders (Direct Bidders), including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, were allocated 19.7%.

Overseas demand is bleak. As an indicator for measuring overseas demand, the percentage of indirect bidders (Indirect Bidders) that participate in bidding by foreign central banks and other institutions is usually only 59.08%, the lowest since May 2021, significantly lower than last month's 62.16%, and far lower than the average of 68.2% in recent times.

As the “successors” that undertook all unpurchased supplies, Primary Dealers (Primary Dealers) received 21.2% of their allocations in this round, the highest since May 2021.

After the auction results were released, the decline in US Treasury bond prices widened. The 10-year US bond yield rose by nearly 5 basis points during the day to an intraday high of 4.3246%.

What needs to be clarified is that the market demand for 20-year US bonds is generally far less than that of 10-year and 30-year treasury bonds, and traditionally, liquidity is poor.

According to the analysis, in general, this was a very bad US bond auction, although significant yield concessions have been made due to rising interest rates. It's unclear why the demand is so bad. Some may attribute this to the tension caused by today's FOMC minutes, but the minutes shouldn't be a big deal because it's out of date and doesn't reflect the latest developments in inflation.


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