Investors are interested in the long end of the Treasury curve



Ten-year T-Notes

In contrast to the three-week auction—where lower demand resulted in high yield—the U.S. ten-year Treasury note (TLT) auctioned on Wednesday, March 12, attracted the highest demand in a year. The Treasury’s auction of $21 billion ten-year notes copied a bid-to-cover ratio of 2.92x—higher than 2.54x the previous week. A higher bid-to-cover ratio means the large number of bids tendered compared to bids accepted, which implies strong demand for the issue. The U.S. ten-year Treasury bond yield was down 0.14% from the previous week at 2.65%.

10-Year T-note

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Many investors fled from riskier assets, including high yield bonds (JNK) and emerging market stocks (EEM) on the face of prevailing tensions in Ukraine, resulting in movements towards safer long-term government bonds. Fund flows for both high yield bonds (JNK) and emerging market stocks (EEM) posted an outflow of $51.9 million and $83.4 million, respectively. On the other hand, money moved into long-term Treasuries such as the 20+ Year Treasury Bond ETF (TLT) and 10-20 Year Treasury Bond ETF (TLH). Both ETFs saw higher fund inflows at $11.7 million and $0.88 million, respectively, last week.

30-year T-bonds

The 30-year Treasury bond (TBT) auctioned on Thursday, March 13, remained relatively soft compared to ten-year Treasury notes. The Treasury’s auction of $13 billion yielded 3.63%—lower than 3.69% the previous week. The bid-to-cover ratio at 2.35x was slightly better than the previous week’s, but still lower than demand two weeks before.

Impact on the bond market

Bond prices were higher last week, as Treasury yields declined. For the past few weeks, the outlook on the U.S. equity market (SPY) was relatively strong, with many corporations beating analysts’ earnings estimates. Strong economic data also suggested a rebound in the market. In the meantime, the bond market was mostly volatile, reacting sharply on the week-over-week change in domestic and global economic indicators. Last week, interest rates remained low. However, going forward, if the macro landscape improves—which is quite likely with a revival in weather-affected data and increases in long-term interest rates—bondholders may suffer from a decline in bond prices.


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