Market Extra: Bond market passes key test as 20-year Treasury auction lures strong demand

by | Oct 18, 2023 | Stock Market

Treasury’s $13 billion auction of 20-year government bonds on Wednesday, seen as a key test of investor demand, came in stronger than expected, which in turn led to a less-pronounced selloff of long-dated government securities in general during the New York afternoon.

Ben Jeffery, a strategist at BMO Capital Markets, said the sale produced “a good result” and was “solid.” Tom di Galoma, co-head of global rates trading for BTIG in New York, described the auction as “well received.”The 30-year Treasury yield
slipped back below 5% following the auction, after having pierced that level Wednesday morning. The benchmark 10-year yield
which touched an intraday high of 4.93%, traded around 4.89% after the 20-year bond sale. A string of stronger-than-expected U.S. data, including Tuesday’s retail sales report for September, has confounded analysts and triggered a round of upward revisions to third-quarter economic growth on Wall Street. Morgan Stanley now expects a 4.9% rate for that period, up from 4.5% previously. The economy remains resilient despite the geopolitical risks being created by the Israel-Hamas wand the Federal Reserve’s decision to step away from the Treasury market as a major buyer through the process known as quantitative tightening.“Greater supply in general of Treasury issuances and the Fed’s QT have been the drivers of the selloff in long-dated Treasurys and one of the triggers for bear steepening,” said Daniel Tenengauzer, a New York-based strategic adviser for the financial technology firm called bondIT. Bear steepening refers to a trading environment in which long-term rates are increasing at a faster rate than short-term ones. However, “the 20-year bond trades particularly cheap compared to both the 10-year and 30-year,” which may have been why it was so appealing to investors on Wednesday, Tenengauzer said via phone. “This doesn’t change the view that, in …

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