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U.S. Treasury yields slipped lower early Wednesday ahead of the first 20-year bond sale since 1986.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.709% fell 1.6 basis points to 0.695%, while the 2-year note rate TMUBMUSD02Y, 0.169% was virtually flat at 0.171%. The 30-year bond yield TMUBMUSD30Y, 1.434% slipped 2.2 basis points to 1.414%.
What’s driving Treasurys?
As part of the Treasury Department’s strategy to finance its multi-trillion dollar deficits this year, it will sell $20 billion of 20-year bonds in the afternoon. New debt issuance can weigh on trading for government paper as broker-dealers may look to push yields higher to draw enough interest in the auction.
Analysts say there should be great demand for bonds between the 10-year and 30-year maturity among insurance companies, pension funds and other institutional investors that need to match long-dated liabilities with equally long-dated assets.
Market participants also point out the 20-year bond could help improve liquidity for older long-term Treasurys, a lingering issue since mid-March when trading for these so-called off-the-run securities halted altogether.
In other markets, the U.K. held its first bond sale that achieved a negative yield on Wednesday. According to the Debt Management Office, it auctioned £3.75 billion ($4.60 billion) of 3-year bonds at an average rate of -0.003%.
Investors will watch the release of the Federal Reserve’s minutes at 2 p.m. ET. The report could show how senior Fed officials are thinking about its emergency lending facilities used to prop up the flow of credit.
Boston Fed President Eric Rosengren said in an interview with MarketWatch that the central bank could do little to combat the public health crisis devastating the U.S.
What did market participants’ say?
“For the 20 year, we believe there will be solid demand given its re-introduction is at an attractive spot on the curve for some investors (notably life insurance and pensions) along with the lack of supply around this sector,” said Justin Lederer, a Treasury market analyst at Cantor Fitzgerald, in a note.
