Treasury sold $13 billion at the higher yield but drew a bid-to-cover ratio of 2.73, up from 2.57. Indirect bidders took about 58% of the competitive awards, against 52.5% last month, and the 10-year yield barely moved afterward.
The cost of long-term borrowing rose again on Wednesday. The people who showed up to lend were more numerous than last month.
The Treasury Department sold $13 billion of 20-year bonds at a high yield of 5.469%, 4.9 basis points above the 5.420% at which the previous reopening cleared on Sept. 15. About 60.05% of the bonds were allotted at the high yield. The median yield was 5.415%.
Who bought
Demand was stronger than the yield alone would suggest. The bid-to-cover ratio, which compares total bids with the amount sold, was 2.73, against 2.57 in September. Of $12.90 billion in competitive awards, primary dealers, the banks obliged to bid at every auction, took $1.323 billion, about 10.3%. Direct bidders took $4.075 billion, about 31.6%, and indirect bidders, a category that includes foreign central banks and many fund managers, took $7.503 billion, about 58.2%.
In September, dealers were left with 16.9% of the sale and indirect bidders took 52.5%. This time the buyers who choose to buy took a larger share, and the buyers of last resort took a smaller one.
The curve around it
The 20-year is an unusual part of the Treasury curve. In the Treasury's daily par yield curve, it yielded 5.47% on Oct. 20, against 5.42% for the 30-year bond, so investors are being paid more to hold 20-year paper than 30-year paper. That makes the 20-year the cleanest read on whether the long end has found buyers.
The market's reaction was muted. The 10-year yield was 5.112% at 1:46 p.m., down 0.6 basis point from Tuesday's close, in a range of 5.081% to 5.121%. There was no visible selloff after the 1 p.m. result.
Two readings of one auction
One reading is that yields above 5.4% are attracting real money. Indirect participation rose, dealer inventory fell, coverage improved and the benchmark yield did not react. On that view, the long end may be finding a ceiling.
The other reading is that demand appeared only because the price rose. The clearing yield went up again, and heavy supply follows next week. Strong coverage at 5.47% may show that investors want a concession, not that worries about deficits and inflation are fading.
The 20-year does not settle the question alone. It is one auction, and the buyers' appetite has been tested only at a higher yield than a month ago.
What to watch
Treasury announces the sizes of the 2-, 5- and 7-year note auctions at 11 a.m. Thursday, and those sales run from Oct. 26 to 29, overlapping the Federal Reserve's Oct. 27 to 28 meeting. Thursday also brings a $26 billion auction of five-year inflation-protected securities, a read on how investors price oil-driven inflation. The 30-year mortgage rate, which the Mortgage Bankers Association put at 7.41% this week, follows the long end, so another rise in long yields would reach housing quickly. Strong dealer-light demand at the shorter auctions would support the view that buyers are returning.