Treasury yields tick lower after strong sale of 20-year government ... - Morningstar

By Isabel Wang and Jamie Chisholm

U.S. Treasury yields were edging lower on Monday afternoon as traders digested the auction results of $16 billion in 20-year government bonds. Investors, meanwhile, awaited minutes of the Federal Reserve’s November meeting in an abridged trading week ahead of the Thanksgiving holiday.

What’s happening

The yield on the 2-year Treasury BX:TMUBMUSD02Y was adding 1 basis point to 4.909%. Yields move in the opposite direction to prices.The yield on the 10-year Treasury BX:TMUBMUSD10Y was dropping 2 basis points to 4.416%.The yield on the 30-year Treasury BX:TMUBMUSD30Y was off 3 basis points to 4.564%.

What’s driving markets

U.S. Treasury yields were sticking to recent lows on Monday afternoon after a 20-year government bonds auction drew stronger-than-expected demand, pushing Treasury prices higher.

See: Treasury yields fall after auction of 20-year bonds sees strong demand

Primary dealers, who are required to buy the debt not purchased by other bidders during a Treasury auction, bought 9.5% of the 20-year debt sold on Monday, according to Treasury Direct. The primary dealers’ buying is seen as an indicator of Treasury demand during auctions. Higher buying usually indicates weak demand.

Financial markets were concerned that Monday’s auction could be a repeat of the sale of the 30-year Treasury earlier this month, which sent the U.S. stock market reeling. At that time, primary dealers were forced to buy nearly 25% of the amount issued, according to Treasury Direct.

Treasurys saw a slight pop after the auction on Monday, as yields on the 10-year note and 30-year Treasury bond were retreating.

U.S. stocks were jumping on Monday, with the Nasdaq Composite up 1.1% and the S&P 500 rising 0.7%.

See: Another Treasury bond auction could rattle stocks on Monday. Here’s what investors need to know.

Treasury yields slid last week, with the 30-year rate logging its sharpest 4-week drop of the year after slowing inflation and signs of a cooldown in the labor market helped drive down yields and boosted the appeal of bonds.

Despite a strong 20-year Treasury auction, investors and traders were still waiting to see if a holiday-shortened week would alter the predominant narrative that recent economic data makes it certain the Federal Reserve has finished raising interest rates in its tightening cycle.

U.S. economic updates on Monday include leading economic indicators for October, which declined 0.8% last month and fell for the 19th month in a row, though the economy doesn’t appear any closer to a recession than when the losing streak began.

The Fed’s minutes of its previous rate-setting meeting will be pulled forward a day to Tuesday afternoon, as will the weekly jobless claims report, which will now be published Wednesday morning.

Before all that, markets were pricing in a 99.8% probability that the Fed would leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on Dec. 13, according to the CME FedWatch tool. The chances of no move in January were similarly priced.

The chance of a 25 basis point rate cut at the subsequent meeting in March was priced at 29%, up from 10% just a week ago.

The bond market will close on Thursday for Thanksgiving, and Treasury trading will shut early on Black Friday.

-Isabel Wang -Jamie Chisholm

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(END) Dow Jones Newswires

11-20-23 1427ET

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