(Bloomberg) — An auction of 20-year Treasury bonds drew good demand, suggesting investors were assuaged by the rise in yields sparked by US aggression over control on Greenland and challenging fiscal conditions globally.
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The $13 billion auction was awarded at 4.846%, about a basis point lower than its yield in trading just before 1 p.m. New York time, the bidding deadline. That investors settled for a lower interest rate indicates demand was stronger than anticipated.
It was the first Treasury note or bond auction since US President Donald Trump over the weekend escalated his rhetoric on Greenland, an autonomous part of Denmark. Trump’s threats to impose tariffs on allies that don’t cooperate revived concern about a resulting drop in demand for US financial assets.
The auction benefited, however, from Trump’s comments at the World Economic Forum in Davos, Switzerland on Wednesday that appeared to rule out military action. After the auction, Treasuries — with US stocks and the dollar — rallied further after Trump rescinded the tariff threat based on a meeting with the NATO secretary general he said produced a “framework” for an agreement on Greenland’s future.
“There was definitely some worry that given the recent geopolitical turmoil we might have seen a bit lower demand heading into the auction,” said Jan Nevruzi, an interest-rate strategist at TD Securities. It was mitigated by the Davos comments, higher yields and the Treasury market’s ability based on its size to withstand “marginal reallocations.”
Yields across the maturity spectrum declined Wednesday, led by longer-dated tenors. Twenty- and 30-year bond yields were lower by more than five basis points in late trading.
Along with a fiscally driven rout in Japanese government bonds, angst surrounding Trump’s push to take over Greenland the helped drive yields for most Treasury tenors to the highest levels in several months on Tuesday, with the longest maturities rising most.
Yields in the 20-year sector peaked near 4.90% on Tuesday, about 15 basis points higher since the auction was announced last week. Their subsequent retreat suggested investors saw a buying opportunity.
“Valuations are compelling enough to draw solid investor demand,” Vail Hartman, an interest-rate strategist at BMO Capital Markets, said before the auction.
Short-maturity Treasury yields, which are more closely tied to the outlook for Federal Reserve monetary policy, also declined. There, investors focused on a Supreme Court hearing on Trump’s attempt to fire Fed Governor Lisa Cook and its implications for presidential influence over the level of short-term interest rates.
Yields rebounded from their lowest levels of the day amid indications that the justices broadly were wary of the administration’s position.
The administration is seeking to alter Fed leadership to bring about interest-rate cuts, including by replacing Chair Jerome Powell with an unnamed successor when his term expires in May.
–With assistance from Miles J. Herszenhorn and Ye Xie.
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