Primer: US to sell USD 13bln of 20yr bonds on 15th September; will settle on 18th September.

• High Yield: (prev. 5.204%, six-auction avg. 5.019%)
• Tail: (prev. 0.5bps, six-auction avg. -0.3bps)
• Bid-to-Cover: (prev. 2.53x, six-auction avg. 2.65x)
• Dealers: (prev. 12.5%, six-auction avg. 10.7%)
• Directs: (prev. 24.6%, six-auction avg. 21.4%)
• Indirects: (prev. 62.9%, six-auction avg. 68.0%)

Primer: The 20-year yield currently trades around 5.40%, notably above the prior auction high yield of 5.204% and the six-auction average of 5.019%. The recent backup in yields has provided a greater outright yield for investors, with higher yields potentially supportive of demand, as seen in the strong September 10- and 30-year auctions. Treasury's increased activity in the long end through its expanded buyback programme may also provide some support by improving liquidity and freeing dealer balance sheets.

One factor to bear in mind, however, is the increase in bond market volatility, with the MOVE Index currently around 84, versus 75 at the time of the prior auction. The auction also comes just one day ahead of Wednesday's FOMC rate decision, creating significant event risk for investors considering adding duration.

The previous 20-year auction was soft, with the 0.5bp tail, below-average bid-to-cover and above-average dealer allocation pointing to weak demand despite the higher outright yield relative to July. Today's auction offers an even greater yield concession, with the 20-year around 20bps above the prior auction high yield, while increased Treasury activity in the long end could also provide some support. However, higher volatility and significant FOMC event risk may temper demand.

The 20-year has long been the problem tenor on the US curve, historically trading cheap to the 10s/30s spline because it lacks the benchmark sponsorship of its neighbours, and its auctions have tended to tail more often and by more than comparable long-end sales. The concession on offer, with the WI trading well above the prior stop, is the standard setup for a decent result: in past episodes a large pre-auction concession plus strong adjacent-tenor auctions earlier in the week has tended to pull end-user demand forward, particularly from indirects, which have been the swing buyer at this tenor. The counterweights here are elevated rate volatility and the FOMC decision the following day, and auctions immediately ahead of policy events have historically shown weaker sponsorship and fatter dealer takedowns as real-money accounts defer duration additions. The tells will be the indirect share versus its recent average, the dealer award as the residual-demand gauge, and any tail or stop-through relative to the WI at the deadline. A soft result into event risk has tended to steepen the 20s/30s pocket and cheapen the tenor further; a strong one typically fades only part of the concession given the macro catalyst still pending.