3.3 bps Tail – Largest on Record

Bid to cover at 2.39 vs 2.53 prior

$16 billion auction size was left unchanged even as 10s and 30s were increased

The recent Treasury auction saw a 3.3 bps tail, the largest on record. Additionally, the bid to cover ratio came in at 2.39, lower than the previous auction’s 2.53. Despite this, the auction size remained unchanged at $16 billion, even as the 10-year and 30-year yields saw an increase.

The 20-year Treasury bond finds itself in a tricky spot on the curve, leading to added selling pressure in the fixed income market. As a result, both the US 10-year and 30-year yields rose by approximately 2 bps, weighing down on stock prices. The US dollar also saw a slight increase across the board.

It raises the question of whether the Treasury was aware of the challenging demand dynamics in the 20-year space prior to the auction. Nonetheless, the odds seem to be stacked against the 20-year bond as it struggles to attract buyers.

Impact on Individuals:

For individual investors, the higher yields on Treasury bonds could translate to potentially higher borrowing costs for mortgages and other loans tied to long-term interest rates. Additionally, the increase in bond yields could lead to lower bond prices, impacting investment portfolios that hold fixed income securities.

Impact on the World:

On a global scale, the rise in US Treasury yields could influence international borrowing costs and bond markets, affecting countries that rely on US debt as a benchmark. Fluctuations in the US dollar may also impact foreign exchange rates and trade relationships between nations.

Conclusion

In conclusion, the recent Treasury auction with a 3.3 bps tail and a lower bid to cover ratio reflects challenges in the demand for longer-term US bonds. This has implications for individual investors and the global market, highlighting the interconnectedness of financial systems worldwide.