Treasury Market Stress: Primary Dealers Taking Up Slack As Foreign Demand Fades
Portfolio Pulse from Neil Dennis
U.S. Treasury auctions are showing signs of stress as primary dealers are taking a larger share due to fading foreign demand. Yields have spiked to 16-year highs, with primary dealers covering more of the auctions than usual. The bid-to-cover ratios remain solid, indicating good demand, but yields are slightly higher than expected. The iShares 20+ Year Treasury Bond ETF (TLT) has gained 12% since October 23. The U.S. government faces a record debt issuance in 2024 to cover its budget, service its deficit, and redeem matured bonds, which could stress-test Treasury demand.
December 12, 2023 | 9:25 pm
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The iShares 20+ Year Treasury Bond ETF (TLT) has seen a 12% gain since October 23, 2023, as Treasury yields have come off their highs. The ETF may continue to be influenced by Treasury auction outcomes and the overall demand for U.S. government debt.
The iShares 20+ Year Treasury Bond ETF (TLT) directly reflects the performance of long-term U.S. Treasury bonds. With the recent gain following the easing of yields from their highs, the ETF's short-term performance is likely to be positively impacted by the current solid demand in Treasury auctions and the potential for continued demand despite the expected increase in government debt issuance. However, any shifts in auction dynamics or demand could quickly alter the ETF's trajectory.
CONFIDENCE 85
IMPORTANCE 70
RELEVANCE 80