(Bloomberg) -- The U.S. government’s first 20-year bond sale since 1986 was awarded at a yield only slightly higher than where it was valued moments before the bidding deadline, and demand metrics suggested investors had no qualms about buying it.
The $20 billion auction was sold at 1.220%, less than a basis point above its when-issued yield of about 1.213% in the minute before the 1 p.m. New York-time bidding deadline. Primary dealers were awarded 24.6%, indirect bidders (a group that includes foreign central banks bidding via the Federal Reserve Bank of New York) took 60.7% and direct bidders 14.7%. The shares were comparable to those for last week’s 10-year and 30-year auctions.
The Treasury Department, which began mulling whether to add another long-maturity security to its product line shortly after President Donald Trump took office, settled on the 20-year in January after rejecting an ultra-long 50- or 100-year bond. At the time, it wasn’t clear that the new issue was immediately needed because the Fed -- in conjunction with its July interest-rate cut -- resumed reinvesting its maturing Treasuries, curtailing the amount that needed to be raised from private investors.
Then the coronavirus pandemic blew a massive hole in the federal budget, and the borrowing need skyrocketed. For the second quarter, Treasury estimated it will borrow $2.99 trillion. Three months earlier, the projection was close to zero.
While 20-year bonds routinely traded at higher yields than 30-year Treasuries before the government stopped selling them in the 1980s, the new one enjoys some advantages.
There’s little supply in that part of the curve to begin with, because the Treasury didn’t issue 30-year bonds from 2001 to 2006. And the Fed -- which has bought more than $1.5 trillion of Treasuries since mid-March to shore up financial markets -- owns as much as it is able to in nearly every bond in the sector.
©2020 Bloomberg L.P.
