US Treasuries will sell $13B of 20-year bonds at 1 PM ET. The last auction of the issue was sold at a high yield of 4.68% The current yield is slightly lower than that at 4.653% ahead of the auction.
BMO has outlined the pros and cons for the auction:
Good things
- 20s have sold off nearly 30 bps since the November payrolls report was released on December 6. The sharp rebound in rates on limited, new fundamental information could translate into a stronger dip buying tendency.
- December is a positive seasonal month for 20-year supply. Since the latest bond was introduced in 2020, three of the four auctions have stopped.
- The unemployment rate is again rising and 0.8 pp off the low cycle. Additionally, core PCE growth in November is tracking at +0.1% MoM (albeit a high of +0.1%) in a move that is sure to be welcomed by the FOMC.
- The strength of the September/October data has diminished, and the cooling trend seen over the summer months has largely resumed in November.
Cons
- The last three 20-year auctions were consecutive, and averaged 2.2 bp.
- November's 20-year repo auction attracted very weak demand and capped by an impressive 3.1 bp – the second biggest record behind February 2024's 3.3 bp tailback. In addition, sellers only took 77.4 % of the case, the smallest end – allocation of users at a refund auction in more than three years.
- The risk of an event arising from tomorrow's FOMC events could keep a significant group of buyers who would otherwise be on the sidelines.
- The silver butterfly 10s/20s/30s are trading at some of the richest levels since the start of the summer which distracts from the relative value issue for 20s compared to the wings.
Below are the 6-month averages for the major components. The auction results will be compared to the averages to determine the relative strength or weakness of the auction.
- Tail: 6 month average 0.6bps
- Bid-to-Cover: 6-month average 2.57x
- Sellers: 6 month average 13.3%
- Lead (measure of domestic demand): 6-month average 15.3%
- Indirect (a measure of international demand): 6-month average 71.4%
This article was written by Greg Michalowski at www.forexlive.com.
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