PREVIEW: US treasury to sell USD 13bln of 20-year bonds at 18:00BST/13:00EDT

AUCTION HISTORYUS 20-YEAR BOND AUCTION RECENT HISTORY: High Yield: (prev. 5.122%, six-auction avg. 4.855%) Tail: (prev. 0.0bps, six-auction avg. -0.1bps) Bid-to-Cover: (prev. 2.55x, six-auction avg. 2.65x) Dealers: (prev. 9.4%, six-auction avg. 10.8%) Directs: (prev. 22.9%, six-auction avg. 24.3%) Indirects: (prev. 67.7%, six-auction avg. 64.9%) PREVIEWThe 20-year auction is the first Treasury sale this month to take place after the US and Iran agreed to end the conflict, reopen the Strait of Hormuz, and remove the US naval blockade. The agreement has seen energy prices fall sharply and Treasury yields retreat from their recent highs. As a result, the 20-year yield currently trades around 4.95%, below the prior auction's 5.122% high yield but still above the six-auction average of 4.855%.While investors are being offered a lower yield than at the May auction, current levels remain attractive in an outright sense and continue to trade near the highest levels seen since July 2025. The reduction in geopolitical risk may offset some of the decline in yield, although uncertainty remains around how quickly oil flows normalise through the Strait of Hormuz and how smoothly upcoming US-Iran nuclear negotiations progress.Market volatility has also eased notably. The MOVE index currently sits around 69, down from the March peak of 116 and below the level of 80 seen at the time of the previous 20-year offering. The decline in implied volatility may help support demand by reducing uncertainty around future rate movements.The auction takes place ahead of Wednesday's FOMC decision, where rates are widely expected to remain unchanged. However, markets remain focused on Chair Warsh's first press conference and any potential changes to the Fed's policy guidance, creating some event risk for investors considering adding duration ahead of the meeting.Recent auction results provided mixed signals. The 3-year auction was slightly soft, the 10-year auction was strong due to exceptionally robust indirect demand, while the 30-year auction disappointed as indirect participation fell sharply and dealers were left with an elevated allocation. The divergence suggests demand remains healthy in some parts of the curve, but that appetite for duration is not uniformly strong.Overall, the auction benefits from still-elevated yields, easing geopolitical tensions, and a notable decline in market volatility. However, investors must also contend with lingering uncertainty surrounding the Middle East, the upcoming FOMC meeting, and mixed signals from recent Treasury auctions. While the backdrop appears somewhat more supportive than it did a month ago, today's sale will provide another important test of investor appetite for duration following last week's disappointing 30-year auction.