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US TSYS/SUPPLY: Preview: $16B 20Y Bond Auction

US TSYS/SUPPLY
USBulletMarketsFixed Income BulletsNorth America

Treasury auctions $16B in new issue 20Y Bond (CUSIP: 912810UJ5) at 1300ET Wednesday, in the week's only nominal coupon supply ($9B 30Y TIPS sells Thursday). It will test market appetite for duration following last week's modest tails at long-end auctions, for the 10Y and 30Y refundings.

  • Last week's tails actually may bode well for the 20Y, which posted a small stop-through the last time the 10Y and 30Y both tailed (July 2024). And January saw a strong 20Y auction (1.0bp trade-through on 4.900% high yield, 2.75x bid-cover, 10.4% primary dealer takeup), which had the best statistics since June 2024.
  • In spite of that, the 5-auction average for the 20Y sees a 1.5bp tail (4 consecutive auctions had tailed prior to January), with an average bid-cover of 2.54x and primary dealers taking 16.8% on average.
  • The current when-issued yield of 4.81% would be the 3rd highest since the re-introduction of the 20Y in 2020 after a 34 year hiatus (January's 4.90% and Oct 2023's 5.245% being the two higher).
  • From a valuation perspective, 20s are trading near the richest levels since June 2024 on the 10s-20s-30s fly (33bp), compared with 36bp at the time of last month's auction. The 2s20s / 5s20s spreads have each flattened 6-7bp since then (to 53bp and 44bp respectively), with the 10s20s spread steady (28bp, between the 4-month range of 25-30bp).

 

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Treasury auctions $16B in new issue 20Y Bond (CUSIP: 912810UJ5) at 1300ET Wednesday, in the week's only nominal coupon supply ($9B 30Y TIPS sells Thursday). It will test market appetite for duration following last week's modest tails at long-end auctions, for the 10Y and 30Y refundings.

  • Last week's tails actually may bode well for the 20Y, which posted a small stop-through the last time the 10Y and 30Y both tailed (July 2024). And January saw a strong 20Y auction (1.0bp trade-through on 4.900% high yield, 2.75x bid-cover, 10.4% primary dealer takeup), which had the best statistics since June 2024.
  • In spite of that, the 5-auction average for the 20Y sees a 1.5bp tail (4 consecutive auctions had tailed prior to January), with an average bid-cover of 2.54x and primary dealers taking 16.8% on average.
  • The current when-issued yield of 4.81% would be the 3rd highest since the re-introduction of the 20Y in 2020 after a 34 year hiatus (January's 4.90% and Oct 2023's 5.245% being the two higher).
  • From a valuation perspective, 20s are trading near the richest levels since June 2024 on the 10s-20s-30s fly (33bp), compared with 36bp at the time of last month's auction. The 2s20s / 5s20s spreads have each flattened 6-7bp since then (to 53bp and 44bp respectively), with the 10s20s spread steady (28bp, between the 4-month range of 25-30bp).

 

Keep reading...Show less