Treasury Yields Fall, Tepid Demand for 20-year auction

US Treasuries rallied on Wednesday as the recent backup in yields reached levels that drew buyers back to the securities.

10-year yields US10YT=RR reached 1.65%, the highest since Oct. 26, before reversing and falling back to 1.61%. They have increased from a low of 1.42% last week, before data showed that US consumer prices reaped their biggest gain in 31 years in October.

Yields briefly spiked after the Treasury sold $23 billion in 20-year bonds at a high yield of 2.065%, more than one basis point above where they had traded before the auction.


Twenty-year bond yields remained above those offered on 30-year bonds US20US30=TWEB, where they have traded since Oct. 28. The 20-year bond yields US20YT=RR were last at 2.05% while 30-year yields US30YT=RR were at 2.00%.

Inflation expectations also fell on Wednesday, with breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR falling to 3.16%, after reaching 3.24% on Tuesday.

Investors are trying to gauge whether rising price pressures are becoming more entrenched, which could lead the Federal Reserve to hike rates faster than previously expected.

The wait to see whether US President Joe Biden will keep Jerome Powell as head of the US central bank for a second term, or elevate Fed Governor Lael Brainard to the post, is adding additional uncertainty to the fiscal policy scene.