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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
BX:TMUBMUSD30Y
slipped back below 5% following the auction, after having pierced that level Wednesday morning. The benchmark 10-year yield
BX:TMUBMUSD10Y,
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 general, Treasury is going to have a more challenging time issuing long-term maturities in the market.”
All three major U.S. stock indexes
DJIA
SPX
COMP
were lower in afternoon trading as 10- and 30-year Treasury yields remained above their highest levels since 2007. As of Tuesday, the 10- and 30-yearhad jumped by more than 150 basis points each from their 52-week lows seen respectively on April 5 and Dec. 7.
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