Thomas Simons, chief U.S. economist at Jefferies, said Wednesday's news was unusual because it did not come as part of the Treasury Department's most recent quarterly refunding announcements, which "suggests that at any time in the future they could make more changes."
Under the current administration, the Treasury Department has been careful to limit the size of long-dated auctions and could feel the need to go further than that, Simons added.
"I think that there is at least some increase in expectations that long-end auction sizes could actually be cut at some point," Simons said.
Auction, Fed minutes and Treasury yield levels
An auction of 20-year Treasuries showed mediocre demand, with a softening bid-to-cover ratio and elevated yields.
Also on Wednesday, the Federal Reserve released minutes from its July 28-29 meeting at which "many" policymakers said they felt interest rate hikes could become necessary if inflation does not decline. However, Simons said economic data released since the meeting meant the minutes now give an outdated economic picture.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR was last down 5.1 basis points to 4.655%. The yield on the 30-year bond US30YT=RR fell 8.9 basis points to 5.196%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 47.2 basis points.
The 2-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 0.6 basis points to 4.181%.
The breakeven rate on 5-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.286% after closing at 2.288% on August 18.
The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.304%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
Long-end Treasuries gain after Treasury buyback announcement
WASHINGTON, Aug 19 (Reuters) - Yields on long-dated U.S. Treasuries held onto earlier declines on Wednesday afternoon, with the increased demand following an announcement that the Treasury Department would double the size of liquidity support buyback operations for longer-dated notes and bonds.
The pressure on U.S. borrowing costs eased as longer-dated euro zone bonds retreated from multi-year highs hit during a global selloff on fears about governments' deteriorating fiscal situations, supply shocks and inflation fears.
At the same time, efforts to end the U.S.-Iran conflict remained stalled on Wednesday and crude prices continued to nudge upwards.
TLT•
