Interesting day in the bond market
The Treasury will jump into 20-year sales today for the first time in 34 years.
The initial auction of $20 billion is a relatively large one and is a reminder of how much debt the US is piling on. The notes are trading at 1.230%-1.220% on the bid/ask in the when-issued market. That puts them much closer to 30-year bonds (1.44%) than 10-years (0.71%).
"An auction concession of some sort is warranted; although we anticipate the new issue will be well absorbed even if it comes at a modest discount," writes Ian Lyngen, head of US rates strategy at BMO.
The broader bond market is reluctant to send and clear signals at the moment. 10s have been in a tight range for six weeks now and it's tough to envision a clear break on either side because you have inflation keeping yields up and the Fed keeping them down.
All market participants are looking at the same thing: Wondering how there can be so much uncertainty but so much optimism in stock markets.
As for today's auction, Lyngen anticipates the bid may be strong, despite the large size.
"The largest stop through at a 10-year auction since March 2017 and a modest tail despite coming at the yield lows of the day for 30s hints of a long-end investor base that is eager to take advantage of the liquidity point supply provides," he wrote.
