Imrpessive Demand For First 20Y Auction In 34 Years Pushes Yields Lower

In our preview of today’s first 20-Year Treasury auction since 1986, we said it was a parade of “20s”: 20 Year bond, issued on May 20, selling $20BN in debt. The only unknown was whether the auction would also price at 1.20%. It was this close.

Moments ago the Treasury announced the results of the first 20Y auction (Cusip 912810SR0) result in 34 years, and it priced at a yield of 1.22%…

… tailing the When Issued 1.213% by 0.7bps, and wide of a straight-line interpolation of where it should have priced.

The auction metrics are as follows:

• Bid to Cover: 2.53x
• Indirects: 60.7%
• Directs: 14.7%
• Dealers: 24.6%

Of course, since there is no recent history to compare today’s auction to, we can do a simple average of the most recent 10 and 30Y auctions and find that today’s auction was better across most categories:

• Bid to Cover: 2.37x
• Indirects: 60%
• Directs: 15%
• Dealers 25%

In other words, a solid bid to cover (compared to its neighbors), strong Indirects and plenty of overall demand (which was to be expected considering today’s modest concession), suggesting that the Treasury will have plenty of demand for this tenor which is destined to become a duration anchor for the near-term Treasury issuance as a result of the trillions in deficit funding needs that will see an explosion in new debt in the coming years.

In kneejerk reaction to the solid demand for today’s paper, the 10Y yield slumped to session lows as the entire curve was bought, with traders clearly happy with the result.