The latest U.S. bond auction has concluded with the sale of $13 billion worth of 20-year bonds. The high yield rate tallied in at 4.942%, matching the when-issued (WI) yield and falling from the previous high yield of 5.047%. The high yield matching the WI yield indicates that demand was in line with supply and a falling high yield could signal lower rate expectations in the future.
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Furthermore, the bid-cover ratio was 2.68, up from 2.46. This ratio represents the dollar amount of bids received compared to the dollar amount of bonds sold, with a higher figure implying greater demand.
A Lower High Yield could Signal Falling Inflation
Direct bidders, a proxy for domestic buyers, totaled 19.9% of the auction, up from 14.1%. Indirect bidders, a proxy for foreign buyers, totaled 66.7%, down from 69%.
With a lower high yield, investors could be expecting lower inflation in the future. That could signal a positive for the stock market, as it could also influence the Fed to lower the federal funds rate. With a lower rate, both consumers and companies are able to borrow with lower costs, driving spending and corporate growth in the process.
The Fed will make the next rate decision on Wednesday, although traders have priced in 99.8% odds that the rate remains unchanged, according to the CME FedWatch tool.
Head over to TipRanks’ Economic Indicators Dashboard to view the federal funds rate and other key economic metrics.
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