US Treasury Auctions to Provide ‘Gut Check’ on Demand as Yields Fall

CHICAGO (Reuters).

FILE PHOTO: The United States Department of the Treasury is seen in Washington, DC, US August 30, 2020. REUTERS / Andrew Kelly

After a two-week drought in coupon supply, $ 38 billion in 10-year bonds will be offered on Monday, followed by $ 24 billion in 30-year bonds on Tuesday.

The auction comes as yields, which move in the opposite direction of prices, fell to levels last seen in February, with the benchmark 10-year yield falling to 1.25% on Thursday and the 30-year yield reaching a low. 1.856% session low.

Zachary Griffiths, macro strategist at Wells Fargo, said current yields, which are at “much less attractive levels” than in the June auctions, could be a barrier to demand after an “almost insatiable” duration supply from investors for debt over the past two weeks.

“I don’t think we’re ready to say that next week’s auction is going to go terribly just because of changing absolute return levels, but it might be a bit of a gut check of the demand position. at this point… lower yields, ”he said.

The June auctions resulted in high yields of 1.497% for 10-year bonds and 2.172% for 30-year bonds.

Investors will show up for new offers, but might be looking for a bit more yield, resulting in larger tails than usual, which is the difference between auction yield and market yield “a. times issued “for debt, according to John. Canavan, Senior Analyst at Oxford Economics.

“There is clearly an interest at these levels, but we might need a little more of a concession simply based on the idea that a long term overbought will require slightly higher returns to be reduced,” a- he declared.

Canavan added that foreign demand could decline a bit, indicating some pullback by Asian investors after the rallies during trading sessions in the United States.

The release of US Consumer Price Index data on Tuesday ahead of the 30-year bond auction could be a factor in this offer. Canavan said a significant upside surprise might require a bit more concession, while a downside surprise might spur better demand.

“There is still a huge amount of silver in the market, a huge demand for Treasuries, and given the lingering concerns about the direction of global growth, given the continued increase in coronavirus cases in many parts of the world, especially with the Delta. variant, I think the demand for safe haven treasury bills will stay with us for the foreseeable future, ”he said.

Reporting by Karen Pierog; Editing by Alden Bentley and Dan Grebler

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