#Liquid notes vs professional

Moreover, the 20-year yield traded in lockstep with the 10- and 30-year securities over our short sample, as shown in the chart below. Not surprisingly, the 20-year yield has traded between that of the 10-year note and 30-year bond, with closing yields on May 29 of 0.66 percent (10-year), 1.18 percent (20-year), and 1.41 percent (30-year).

Price Behavior Tracks 10- and 30-Year Securities As described here, all Treasury security trading through electronic IDBs is in the most recently auctioned (or on-the-run) coupon-bearing securities, so our data for the 20-year bond starts May 21 (the day following the first auction). In the IDB market, electronic platforms accounts for about 87 percent of IDB trading, and BrokerTec is estimated to account for 80 percent of electronic IDB trading.

#Liquid notes vs professional

As described in this post, roughly half of Treasury securities trading occurs through interdealer brokers (IDBs), in which dealers and other professional traders transact with one another, and roughly half between dealers and customers. We analyze the initial performance of the 20-year bond using a short sample of data from the BrokerTec electronic trading platform. How We Evaluate the New Bond’s Functioning Investment funds bought 58 percent of the issue, foreign and international investors 13 percent, other dealers and brokers 4 percent, and all other investors 1 percent (including depository institutions, pension and retirement funds, insurance companies, and individuals). Primary dealers, which are expected to backstop Treasury auctions, bid for roughly $28 billion of the issue and were awarded just under $5 billion, or 25 percent of the amount offered. The bidder category and investor class allotment data, described in this article, suggest similar buyers at auction as for the 10- and 30-year securities. Over $50 billion in bids were submitted for the $20 billion offered, resulting in a bid-to-cover ratio of over 2.5.

The 1.22 percent yield led to a coupon rate of 1 1/ 8 percent (coupon rates are set in 1/8 percent increments at the highest increment less than or equal to the high yield). The issue faced strong demand at auction, with a high yield (corresponding to the lowest accepted bid price) of 1.22 percent, close to the rate in the when-issued market right before the auction close. The first reintroduced 20-year bond was announced for auction on May 14 with a May 20 auction date, June 1 issuance date, and maturity date of May 15, 2040. Coupon and maturity dates are aligned with those of the 10- and 30-year securities, but the bond is auctioned and issued later in the month, to spread auction supply more evenly. As with the 10-year and 30-year securities, a new 20-year issue is offered each quarter, around the time of the Treasury’s quarterly refunding, with additional amounts offered through scheduled reopenings one and two months later. Like other Treasury coupon securities, 20-year bonds are issued at a price close to par value with a stated rate of interest, pay interest every six months, and are redeemed at par value at maturity. Structure Similar to that of Other Notes and Bonds In introducing the 20-year bond, Treasury cited the expected strong demand, which would “increase Treasury’s financing capacity over the long term,” while meeting its objective “to finance the government at the least possible cost to taxpayers over time.” Market participants suggested that the bond could be attractive to liability-driven investors, such as corporate pensions and insurance companies. The Treasury has launched a range of new debt products over the years, such as Treasury inflation-protected securities and floating rate notes, and explored the adoption of others, such as an ultra-long 50-year bond. But just how liquid is the new bond? In this post, we take a first look at the bond’s behavior, evaluating its trading activity and liquidity using a short sample of data since the bond’s introduction. In announcing the reintroduction, Treasury said it would issue the bond in a regular and predictable manner and in benchmark size, thereby creating an additional liquidity point along the Treasury yield curve. Department of the Treasury sold a 20-year bond for the first time since 1986.