An auction of U.S. Treasury bonds maturing in 20 years encountered strong demand from investors, indicating the market is warming up to owning longer-dated government securities.
The highest yield, or return, accepted by investors at the Monday auction of $16 billion in 20-year Treasury debt was 4.780%. That was lower than the when-issued yield of 4.790%, the yield seen at the 1 p.m. bidding deadline. The fact that the highest accepted yield was lower than the when-issued yield indicates strong demand at auction.
Another positive indicator was the amount bought by primary dealers, who buy up supply not taken by bidders. They had to accept 9.5% of the debt sold, compared with 11.9% in the most recent 20-year auction, on Oct. 18.
All three major stock market indexes climbed. Shortly after the news, the
S&P 500
rose 0.7%, compared with 0.4% before. The tech-heavy
Nasdaq Composite
gained more than 1% while the
Dow Jones Industrial Average
was 0.5% higher.
The positive auction outcome could be attributed to investors seeking to extend the maturity of their portfolios. Expectations that the Federal Reserve may reduce interest rates may be motivating investors to lock in yields at the current levels.
Auctions typically don’t have such a discernible impact on the markets, but investors have been paying more attention since the Treasury announced increased sizes of its debt auctions in August. The market has witnessed a series of weak results, including an auction of 30-year debt that tanked markets earlier this month. That has prompted concerns about whether investors can effectively absorb the deluge of supply.
Yields on longer-dated debt declined after the auction. The 20-year Treasury yield was down to 4.77% versus 4.88% before the auction. The 10-, 20- and 30-year bond yields all hit intraday lows, according to Dow Jones Market Data.
That’s good news for bond investors. As yields fall, prices of bonds move higher.
Yields have been trending down from their October peaks as recent data on inflation and the labor market have suggested the Federal Reserve may be done increasing interest rates. The 30-year yield ended Friday at 4.597%, down from its peak of 5.101% on Oct. 19, but still higher than the 3.934% seen at the end of 2022.
The strong demand for 20-year debt may raise hope that yields will keep falling. The next test for the market comes Tuesday, when the Treasury is scheduled to auction $15 billion of 10-year inflation-protected notes.
Write to Karishma Vanjani at [email protected].
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