Stellar 20Y Auction Stops Through, Benefits From Solid Foreign Demand
After last week’s basis trade collapse (which we now know has already claimed several relative value multistrat hedge funds), many were dreading the outcome of today’s 20Y auction, a reopening of 19-Year, 10-Month cusip UJ5. It turned out they have nothing to fear.
The $13BN auction priced at 1:01pm ET at a high yield of 4.810%, up sharply from last month’s 4.632% and the highest since February; more importantly it stopped through the When Issued 4.814% by 0.4bps, the second consecutive stop through (if fractionally weaker than last month) and 3rd in the past 4 months.
It wasn’t just the headline: the Bid to Cover was 2.63, which while down from last month’s 2.78 was comfortably above the six-auction average of 2.57.
But like last week, the internals were most closely watched because in a time when there was virtually no Direct demand for US paper (amid the basis trade unwind), the composition of today’s takedown distribution was sure to be a buzz if there were any outliers. In the end, there would be no buzz because there were no surprises: Indirects took down a decent 70.7%, the highest since August and naturally above the six-auction average; As for Directs, unlike last week’s collapse, today they took down a healty 12.3% – yes still the lowest since November, but hardly a single digit affair like we saw last week. Finally Dealers were left holding 17.0%, just fractionally above the 15.3% average, and in line with recent auctions.
Overall, this was a remarkable solid 20Y auction, and one which certainly brushed away concerns that foreigners are boycotting US Treasury auctions, if only for now. As for the secondary market, that’s a different story.
Tyler Durden
Wed, 04/16/2025 – 13:29
