20s Underperform On Mild Refunding Surprise

While today's Treasury refunding announcement was more or less in line with expectations, the underperformance of the 20Y Note on the curve (see chart of 10s-20s-30s butterfly below) following the release was notable.

• Not many on the sell-side had expected every coupon issue size to be culled. Reductions in short-end auction sizes (2s, 3s) were not particularly surprising but also far from unanimously expected.
• The reduction in 10s and 30s was likewise unsurprising but some previews we read either had "no change" penciled in, or for some who saw cuts, conceded risks that there would be no change to these segments.
• Expectations for cuts were more focused on certain segments, including 7s, but in particular, 20s which have been underperforming on the curve. Some had even expected an upcoming 20Y auction to potentially be cancelled, but the TBAC report suggests a more conservative approach:"The Committee was unanimous in its view that Treasury should remain committed to the 20-year maturity point...with the recommended further reduction, the 20-year is reaching the range of sustainable issuance size that should be better aligned with future demand."
• Taken together, the 20Y weakened relative to the rest of the curve following the announcement.

10s20s30s Curve ButterflySource: BBG