📊 5.469%. Yesterday’s 20-year Treasury auction had a different mix of buyers
At 1 p.m. Eastern yesterday, the Treasury sold $13 billion in 20-year notes, with a 5.125% coupon and an August 2046 maturity. The high yield was 5.469%.
Foreign media headlines called it the “highest since January 1986.” The number is right. But there was a 34-year gap in between: the Treasury stopped issuing this maturity in 1986 and only brought it back in May 2020. So, more precisely, this was the highest yield since the 20-year note was reintroduced.
To gauge demand, don’t just read the headline. Look at three numbers.
The bid-to-cover ratio was 2.73, up from 2.57 last month and above the six-auction average of 2.62. Not bad. The tail was 0.9 basis points, meaning the auction yield came in 0.9 bp above the pre-auction when-issued yield—the Treasury had to offer a concession to get the notes sold. Last month’s tail was 2.0 bp, which was called “ugly.”
What really changed was the buyer mix. Look at who bought. Indirect bidders took 58.2%, versus a six-auction average of 65.2%—7 percentage points below average. Primary dealers were left with just 10.3%. Direct bidders took 31.6%, compared with an average of 22.9%. Accounts placing bids themselves are stepping in.
The yield curve tells the story more plainly than any single auction. At yesterday’s close, the 10-year yielded 5.13%, the 20-year 5.47%, and the 30-year 5.42%. The 20-year is the most expensive point on the curve. Its yield is 5 basis points above the 30-year. This part of the curve has traditionally been the least liquid; now it’s where borrowing costs are highest across the curve.
There’s another auction. At 1 p.m. Eastern today, the Treasury will issue $26 billion in 5-year TIPS, CUSIP 91282CRR4, maturing in October 2031. The nominal 5-year yield is 4.95%, while the real yield is 2.55%, putting the gap between the two curves at about 2.4 percentage points. That’s the price the market is putting on inflation over the next five years.
The 2.55% figure is worth remembering. In all of 2019, the 5-year real yield peaked at 1.00%.
Risk assets didn’t hold up. Gold futures were at $4,107, down 1%. The dollar index was at 101.58. Four BTC price feeds ranged from 82,855 to 82,945, essentially flat over 24 hours, after touching a high of 84,898. For the October 28 rate decision, Polymarket gives “no change” 87.5 points and a “25-basis-point hike” 12.5 points.
Today, keep an eye on just one thing. If the TIPS auction also tails, it means the market wants a higher real return, and the inflation compensation on offer isn’t enough. If long-term yields can’t come down, the discount rates for every asset whose story depends on future cash flows will have to be recalculated.
$BTC $ETH
#中本聪国际社区Baoluo币商资本 #美债 #Macroeconomics
At 1 p.m. Eastern yesterday, the Treasury sold $13 billion in 20-year notes, with a 5.125% coupon and an August 2046 maturity. The high yield was 5.469%.
Foreign media headlines called it the “highest since January 1986.” The number is right. But there was a 34-year gap in between: the Treasury stopped issuing this maturity in 1986 and only brought it back in May 2020. So, more precisely, this was the highest yield since the 20-year note was reintroduced.
To gauge demand, don’t just read the headline. Look at three numbers.
The bid-to-cover ratio was 2.73, up from 2.57 last month and above the six-auction average of 2.62. Not bad. The tail was 0.9 basis points, meaning the auction yield came in 0.9 bp above the pre-auction when-issued yield—the Treasury had to offer a concession to get the notes sold. Last month’s tail was 2.0 bp, which was called “ugly.”
What really changed was the buyer mix. Look at who bought. Indirect bidders took 58.2%, versus a six-auction average of 65.2%—7 percentage points below average. Primary dealers were left with just 10.3%. Direct bidders took 31.6%, compared with an average of 22.9%. Accounts placing bids themselves are stepping in.
The yield curve tells the story more plainly than any single auction. At yesterday’s close, the 10-year yielded 5.13%, the 20-year 5.47%, and the 30-year 5.42%. The 20-year is the most expensive point on the curve. Its yield is 5 basis points above the 30-year. This part of the curve has traditionally been the least liquid; now it’s where borrowing costs are highest across the curve.
There’s another auction. At 1 p.m. Eastern today, the Treasury will issue $26 billion in 5-year TIPS, CUSIP 91282CRR4, maturing in October 2031. The nominal 5-year yield is 4.95%, while the real yield is 2.55%, putting the gap between the two curves at about 2.4 percentage points. That’s the price the market is putting on inflation over the next five years.
The 2.55% figure is worth remembering. In all of 2019, the 5-year real yield peaked at 1.00%.
Risk assets didn’t hold up. Gold futures were at $4,107, down 1%. The dollar index was at 101.58. Four BTC price feeds ranged from 82,855 to 82,945, essentially flat over 24 hours, after touching a high of 84,898. For the October 28 rate decision, Polymarket gives “no change” 87.5 points and a “25-basis-point hike” 12.5 points.
Today, keep an eye on just one thing. If the TIPS auction also tails, it means the market wants a higher real return, and the inflation compensation on offer isn’t enough. If long-term yields can’t come down, the discount rates for every asset whose story depends on future cash flows will have to be recalculated.
$BTC $ETH
#中本聪国际社区Baoluo币商资本 #美债 #Macroeconomics