May 20, 2020 / 8:22 PM / 17 days ago

TREASURIES-Yields ease after first 20-year bond auction in decades

 (Updates yields; adds 30-year yield, Fed minutes)
    By Karen Pierog
    CHICAGO, May 20 (Reuters) - U.S. Treasury yields slipped on
Wednesday after a somewhat underwhelming debut of the first
20-year bond in decades left the market uncertain how the new
government financing tool will fit in. 
    The benchmark 10-year yield was last down 2.6
basis points at 0.685%, just below its level before the sale
results were announced and extending a decline from Tuesday's
late levels.
    For the first time since 1986, the U.S. Treasury sold $20
billion in 20-year bonds at a high yield of 1.22%. The
bid-to-cover ratio, a metric of overall demand, was 2.53.
Primary dealers, who must absorb any supply not bought by direct
and indirect buyers, took 24.6% of the deal.

   The 20-year joins the Treasury's debt toolbox in financing
trillions of dollars in U.S. stimulus spending aimed at
combating the fallout from the COVID-19 pandemic.
    Jim Vogel, an interest rate strategist at FHN Financial in
Memphis, Tennessee, said the market was treating the 20-year
bond like "the new kid." 
    "It will likely take 3-4 months or a significantly steeper
curve to fold new (20-year bonds) better into the Treasury
complex...to where they're no longer just the kid brother of the
30-year (bonds)," he wrote in commentary following the auction.
    The auction was "pretty decent" even though there was a
small tail, said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York, noting the when-issued yield of
1.215% heading into the auction was slightly lower. 
    More 20-year bonds are coming as a total of $54 billion is
expected over three months. Rajappa said the question will be
"how much demand you're going to see on a consistent basis."
    Minutes from the Federal Reserve's April meeting indicated
policymakers were sticking to their pledge to keep interest
rates near zero until the U.S. economy gets back on track.

    Justin Lederer, an interest rate strategist at Cantor
Fitzgerald in New York, said given that Fed officials, including
Chair Jerome Powell, have been speaking publicly a lot lately,
"there was nothing of a surprise there."
    The 30-year bond yield tumbled 3.2 basis points
to 1.4037%.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was last down a
basis point at 0.1633%.
    Bids submitted in a Wednesday morning overnight repurchase
agreement (repo) operation totaled $7 billion, according to the
New York Federal Reserve, which said it accepted all the bids.
  May 20 Wednesday 2:29PM New York / 1929 GMT
                               Price                  
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.12         0.122     -0.007
 Six-month bills               0.145        0.1471    -0.008
 Two-year note                 99-237/256   0.1633    -0.010
 Three-year note               99-190/256   0.2117    -0.008
 Five-year note                100-48/256   0.3367    -0.011
 Seven-year note               99-216/256   0.5229    -0.018
 10-year note                  99-108/256   0.685     -0.026
 30-year bond                  96-64/256    1.4037    -0.032
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.50        -0.25    
 spread                                               
 U.S. 3-year dollar swap         5.50         0.00    
 spread                                               
 U.S. 5-year dollar swap         3.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -1.75         0.75    
 spread                                               
 U.S. 30-year dollar swap      -47.25         1.00    
 spread                                               
 



 (Reporting by Karen Pierog in Chicago; Editing by Alden Bentley
and Leslie Adler)
  
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