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US TSYS
Yesterday’s well-received 20-Year Tsy auction has helped drive 20s towards the richest level seen since early October on the 10s20s30s fly (based on closing levels and where we currently print, as opposed to intraday marks).
- 20s have been a bit of a problem for the Treasury since they were reintroduced to the primary issuance schedule back in 2020, with meaningful supply/demand mismatches noted in several instances since then.
- That is probably down to a mix of a lack of ‘natural buyers’, market participants being creatures of habit and the inappropriate sizing of auctions, which, when netted off against the reappearance of term premium, makes this an obvious pressure point in RV terms.
- The Treasury is aware of this. Corrections on the relative auction sizing front and the planned Treasury buyback scheme aimed at improving market liquidity (scheduled to start in ’24) have insulated the sector from the degree of cheapening that was witnessed in ’22 (when markets were digesting the start of the Fed’s tightening cycle and stickier than expected inflation).
- The fact that ’23 cheaps on the 10s20s30s fly held in recent sessions, coupled with the above supportive measures, probably emboldened bidders at yesterday’s 20-Year auction.
Fig. 1: U.S. 10s20s30s Butterfly (bp)
Source: Bloomberg/MNI - Market News
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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