The U.S. Treasury is set to auction $13 billion of 20-year bonds at 1 PM ET today. This auction will be closely monitored as the results will provide insight into the demand for long-term government debt. During the auction, several key factors will be analyzed to determine its success:
– Tail: The difference between the WI level at the time of the auction and the high yield is expected to be +0.1 basis points.
– Bid to cover ratio: The bid to cover ratio is anticipated to be 2.60X, indicating the level of demand relative to the amount of securities being offered.
– Directs: A measure of domestic demand, which is projected to be around 18.9%.
– Indirects: A measure of international demand, expected to be approximately 67.8%.
– Dealers: The percentage of the auction that is typically purchased by primary dealers, forecasted to be 13.3%.
In the previous week, the U.S. Treasury conducted auctions for 3, 10, and 30-year coupon issues. While the three-year note auction received lukewarm demand, the 10 and 30-year auctions performed well with grades of A-, driven by strong international interest.
Today, yields are lower following weaker-than-expected retail sales data. The current yield on the 20-year bond stands at 4.471%, down -4.8 basis points from the previous auction. Comparing to last month’s auction, where the high yield was 4.635%, yields have decreased by 17 basis points, potentially presenting challenges for today’s auction.
During the previous month’s auction, the tail was -0.2 basis points with a bid to cover ratio of 2.51X. With yields trending lower, it will be interesting to see how investors respond to the 20-year bond offering today. The outcome of this auction will provide valuable insights into the market’s appetite for long-term U.S. government debt and its implications for future borrowing costs. Investors and analysts will be closely watching the results to gauge the overall sentiment and demand in the bond market.