Stronger demand for auctions and the recent popularity of the 20-year could already be compelling the department to consider increasing the size — which it has deliberately kept smaller than other bond sales — the bank's strategists say. The Treasury department's quarterly announcement of its financing plans, scheduled for Jan. 31, "presents an opportune window."

The 20-year "should win the comeback player of the year award if there was one for bonds," Deutsche Bank strategists led by Steven Zeng wrote in a report Friday, adding the 20-year has occasionally become expensive for traders to borrow in the Treasury collateral market, signaling a scarcity of supply.

While the 20-year is once again the highest-yielding fixed-rate Treasury in the market following a steep drop in the two-year note's yield on expectations for Federal Reserve interest rate cuts, it "saw a resurgence in popularity last year" marked by stronger demand for auctions, Zeng wrote.

The Treasury Department resumed selling 20-year bonds in May 2020 after a more than 30-year hiatus, beginning with a $54 billion issue that was larger than most dealers recommended. By the end of that year, it had increased the size of each quarterly issue to $75 billion, and 20-year bond performance suffered. Since October 2021, the 20-year bond has yielded more than the 30-year, a sign of limited demand.

The department responded by disproportionately cutting the size of 20-year bonds down to $39 billion in mid-2022. When it resumed increasing the size of note and bond auctions in August 2023, the 20-year grew minimally, to $42 billion, and in November it was kept at that level even as the department's six other tenors were increased.

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