On the eve of the Federal Reserve's September interest rate decision, the auction of 20-year US Treasury bonds was dismal

On Tuesday, September 17th, on the eve of the Federal Reserve's September interest rate decision, the U.S. Treasury auctioned $13 billion of 20-year Treasury bonds. Overall, the auction results were poor, with demand far below expectations.

The bid-to-cover ratio for this auction was 2.51, the lowest since February, with the previous ratio at 2.54. The average bid-to-cover ratio for the last six auctions was 2.68.

As a measure of domestic demand in the U.S., the allocation to Direct Bidders, including hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, was 16.3%.

As a measure of foreign demand, the allocation to Indirect Bidders, typically foreign central banks and other institutions participating through primary dealers or brokers, was 65.1%, significantly lower than the previous month's 71%, marking the lowest level since the dismal auction in February.

Primary dealers, who act as "dealers of last resort" for all unsold supply, received an allocation of 18.6% in this round, nearly double the approximately 9.7% from the previous month, marking the highest since February and indicating weak real demand.

Financial blog Zerohedge commented that overall, this was a very bad auction and could easily become the second worst 20-year U.S. bond auction in 2024. The market reacted appropriately, with the 10-year Treasury yield rising to an intraday high after the auction results were announced.

It is worth noting that the market demand for 20-year Treasury bonds is usually much lower than that for 10-year and 30-year Treasury bonds, traditionally due to poor liquidity. Even former U.S. Treasury Secretary Mnuchin, who introduced this bond last month, had previously stated that it was time to end the 20-year Treasury bond