Ugly, Tailing 20Y Auction Sends Yields To Session High

After last week’s solid auction which saw stellar demand no doubt on the expectation that the Fed will soon be slashing rates, moments ago we got the results of this week’s sole coupon offering: a $13 billion reopening of 19Y-11M cusip UD8, where we learned that demand for 20Y paper was far weaker than expected.

Stopping at a high yield of 4.039%, the 20Y reopening yield was down from 4.16% in August, and even though this was the lowest 7Y yields since July 2023, it was the auction this month to still yield above 4% (thanks to the infamous 20s-30s kink, the 30Y trades at 3.96%). Notably, it also tailed the When Issued 4.019% by 2.0bps, the biggest tail since February’s catastrophic – and record – 3.3bps tail, and followed 6 consecutive stop throughs.

The demand metrics were just as ugly: the bid to cover sank to 2.51 from 2.54, the lowest since February and naturally below the six-auction average of 2.68%. 

The internals were even worse: indirects took down 65.1%, down from 71.0% last month and the lowest since the dismal February auction. And with Directs taking 16.3%, Dealers were left holding 18.6%, double last month’s 9.7% and the highest since – you guessed it – February.

Overall, this was a very ugly auction, easily the second worst 20Y sale of 2024, and the market reacted appropriately, sending the 10Y yield to session highs.