The US Treasury conducted an auction of 20-year bonds, raising $13 billion at a high yield of 4.613%. The yield was close to the when-issued level of 4.615%, resulting in a -0.2 basis points tail, better than the six-month average tail of 0.4 basis points.<\/p>\n
The bid-to-cover ratio was 2.74 times, surpassing the six-month average of 2.65 times. Domestic direct bidders accounted for 27.87% of the uptake, significantly exceeding the six-month average of 19.5%. Indirect bidders, primarily foreign entities, took 64.56%, slightly less than the average of 67.2%.<\/p>\n
Dealers ended up with 7.57% of the bonds, which is much lower compared to the six-month average of 13.3%. The auction’s overall performance received an A- grade, indicating a strong demand and favourable conditions for the 20-year bonds.<\/p>\n
This strong demand for 20-year government debt suggests a growing conviction that interest rates are near their peak. The high percentage of direct domestic buyers shows that real money is stepping in to lock in these yields, believing they won’t go much higher. This signals a potential turning point for the bond market after a period of uncertainty.<\/p>\n
The timing of this auction is important, following the Federal Reserve’s decision to hold rates steady in its July 2025 meeting. With last week’s August 2025 inflation report showing a moderation in core CPI to 3.1%, the market is reinforcing its bet that the hiking cycle is over. We saw a similar dynamic in late 2023 when strong auctions preceded a significant rally in bonds as the Fed signaled a pivot.<\/p>\n
For derivatives traders, this points toward positioning for lower long-term yields. We should consider establishing or adding to long positions in 10-year Treasury note futures (\/ZN) or 30-year bond futures (\/ZB). These instruments will profit if bond prices rise and yields fall, which is the path this auction data suggests.<\/p>\n
This environment may also lead to lower bond market volatility as a consensus view forms. The MOVE Index, which measures Treasury market volatility, is currently at 110, down from its highs earlier in the year but still elevated compared to historical norms. We see an opportunity to sell volatility, perhaps through short strangles on bond ETFs like TLT, to collect premium on the bet that rates will now trade in a more defined range.<\/p>\n
Finally, a stable or falling interest rate outlook is typically bullish for rate-sensitive equity sectors. We could express this view by purchasing call options on growth-focused indexes, such as the Nasdaq 100. This cross-asset trade allows us to capitalize on the idea that a calmer bond market will provide a tailwind for technology and other growth stocks in the weeks ahead.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" US 20-year bond auction raises $13B with strong demand, low tail, and high bid coverage.<\/p>\n","protected":false},"author":62,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-30876","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30876","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=30876"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30876\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17022"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=30876"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=30876"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=30876"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}