US Treasury 20-Year Auction Shows Solid Demand; 5-Year TIPS Next

Reuters

11:48 JST, June 17, 2025

NEW YORK, June 16 (Reuters) – The U.S. Treasury’s sale of $13 billion in 20-year bonds showed solid demand on Monday, in line with last week’s 10-year and 30-year debt auctions that were also well-received.

The auction priced at a high yield of 4.942%, roughly tracking the market’s rate forecast in when-issued trading at the bid deadline. This outcome suggested no premium was needed to take down the note.

The auction was a big turnaround from the sale of new 20-year bonds last month, which underperformed and saw their yields soar to the highest levels since November 2023. Last month’s 20-year sale also triggered a sharp selloff in other long-dated Treasuries.

In afternoon, the 20-year yield US20YT=RR rose 4.2 basis points to 4.974%, despite a well-received sale, up from 4.933% just before the auction.

“The bond market has not been behaving as usual. I think the market has been taking back some of the safe-haven bids last Friday following the Israel-Iran conflict,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

“And now we have this news that Iran is probably back at the negotiating table, and so that’s curbing a likely rally a little bit. In general, 20-year bonds often have trouble attracting bids, but this auction went okay.”

The bid-to-cover ratio, another gauge of demand, was at 2.68, higher than last month’s 2.46 and the auction average of 2.63 for reopened bonds.

Indirect bids, which include foreign central banks, were awarded 66% of the total issue, down from 68% during last month’s auction of new 20-year bonds. The 66% reading was in line with the average for a reopening.

Primary dealers took in just 13% of the bonds, compared with nearly 17% last month. Lower dealer participation in Treasury auctions suggests increased interest from other investors, meaning dealers had no need to step in to absorb the note.

Traders are bracing for Tuesday’s $23 billion auction of U.S. five-year Treasury Inflation-Protected Securities (TIPS) which could garner attention given the recent spike in oil prices that has stoked concerns about inflation.

U.S. crude futures, however, fell on Monday after reports that Iran is seeking an end to hostilities with Israel. That raised the possibility of a truce and has eased fears of a disruption to crude supplies from the region.

Demand for front-end TIPS has been solid so far given worries about near-term inflation with the effect of tariffs impacting core goods prices, analysts said.

But the outcome for five-year TIPS in the last three auctions was soft, pricing above the rate forecast in when-issued trading at the bid deadline, according to Barclays data, which suggested that investors demanded a premium to buy the note. In bond market parlance, the five-year TIPS auctions “tailed.”

The last bid-to-cover ratios were also down at 2.28 in the April auction and 2.10 in December 2024, the lowest in a decade, according to Barclays rates and inflation strategist Jon Hill.

“We see preliminary evidence of a pullback in investor class allocations to ‘foreign & international’ accounts across TIPS benchmarks year-to-date, as both the April five-year new issue and May 10-year reopening had allocations below 5%,” Hill wrote in a research note.