Bessent May Cut Long Bond Auctions, Even Cancel 20 Year, Citi Says
Bessent likely to cut long bond auctions, Citi says, 20 year at risk
U.S. Treasury Secretary Scott Bessent is likely to reduce auction sizes for long dated government bonds and could cancel sales of 20 year debt altogether, according to Citigroup.
Citi's base case is a $3 billion reduction per auction for both 20 year and 30 year bonds, funded by additional Treasury bill issuance. Head of U.S. rates strategy Jason Williams outlined the call in a late Friday note to clients.
Williams said the change, if adopted, would be announced at the Treasury's next quarterly refunding announcement on November 4. He recommended positioning for 20 year bonds to outperform 10 year notes on reduced or cancelled 20 year supply.
Yields near highs and a dealer survey ahead
The argument is aimed at yields that have stayed near multi decade highs. One market report put the 10 year yield at 5.24 percent on October 9 and the 30 year at 5.60 percent, with bills far cheaper at the front end.
Williams flagged a Treasury dealer survey due the following Friday as a possible bullish catalyst, if it asks whether long end demand is being partly cannibalized by high quality issuance from large AI hyperscalers. The Treasury has not confirmed any change to auction sizes.
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How this could hit the options market
This is a direct rates story. Bond funds such as TLT, IEF and SHY would be first in line if long end supply falls and yields ease, with rate sensitive equities in XLU and XLRE close behind.
Options flow in TLT calls or in long duration names ahead of November 4 would show traders front running the refunding. A disappointment, with no cut announced, could reverse that positioning quickly and push long yields back toward their highs.
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