US Treasury yields fell on Wednesday after the Treasury launched its first sale of the 20-year bond since 1986, attracting a better than expected appetite for the new issue.
What are Treasurys doing?
The yield on 10-year treasury bills
down 3.2 basis points to 0.679%, while the two-year rate
fell 0.161%. The bond yield at 30 years
slid 3.3 basis points to 1,400%.
What motivates Treasurys?
As part of the Treasury Department’s strategy to finance its multi-billion dollar deficits this year, it sold $ 20 billion of 20-year bonds in the afternoon.
The auction “lagged” by 0.7 basis points, generally seen as a sign of weak demand. The tail is the spread between the highest yield the Treasury sold at the auction and the yield before the auction started.
Investors, however, said the results were better than expected, as it was not clear to what extent there was demand for bonds between the 10 and 30 year maturities among insurance companies, pension funds and other institutional investors who must meet long-term commitments. with assets of the same duration.
Market participants also point out that the 20-year bond could help improve the liquidity of older long-term treasury bills, a problem that has persisted since mid-March, when trading in these so-called over-the-counter securities been completely stopped.
In other markets, the United Kingdom held its first bond sale which achieved a negative return on Wednesday. According to the Debt Management Office, it auctioned 3.75 billion pounds ($ 4.60 billion) in three-year bonds at an average rate of -0.003%.
The publication of the Federal Reserve minutes of its rate-setting committee’s April meeting showed that senior Fed officials did not believe negative interest rates were an option, but discussions continued. focused on the possibility of capping bond yields.
Boston Fed Chairman Eric Rosengren said in an interview with MarketWatch that there was little that the central bank could do to address the devastating public health crisis in the United States.
What did market players say?
“We expected it to be difficult for investors to digest the 20-year bond. It has no natural buyer and the size of the program was much larger than expected. For all these reasons, it was not going well today, “said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management, in an interview.
“Since expectations were low enough for this problem, people were quite satisfied with the auction,” said Ren.