Once again Treasury did not receive enough offers to fill their expanded buyback auction. Today was the first expanded size buyback auction for the ultra-long end of the curve (20y-30y). Treasury offered to buy back up to $6B – an increase from the $2B offer at previous reverse auctions - but did not receive enough offers to fill the $6B allotment. The Treasury received 10.5B offers but only deemed $4.1B of these bids acceptable. The $10.5B was a ~50% reduction in offers from the previous two buyback auctions for this maturity bucket. Remember these are reverse auctions to purchase off-the-run issues. The Treasury uses a non-disclosed model to determine what an acceptable liquidity premium is. Basically, they have the fitted yield curve from the on-the-run issues and a model of how much is a "fair" discount for off-the-run issues. If someone tenders a bid considered fair, they get filled (or put on the demand curve if the number of fair bids exceeds the auction cap). Treasury did not receive enough fair bids that they deemed “fair” today to buy back the entire $6B offered. This is becoming a pattern and a good sign that dealers do not fear allocating balance sheet capacity to off-the-run Treasuries. The first expanded buyback auction was held on 2 weeks ago when Treasury offered to buy back $6B in the 10-20y maturity bucket but did not receive enough acceptable bids to fill the entire $6B offer. Treasury also offered to buy back $4B last week in the 7-10year maturity bucket and only received $2.4B in acceptable bids. Although they didn’t fill the whole allotment, Treasury did buy back more than twice as much as previous 20-30y buyback auctions when the cap was only $2B. The previous two buybacks for this longer (20y+) maturity bucket both filled their $2B cap with $19.9B of offers in August and $21.9B in July. We don’t know how many of these previous auction offers were at acceptable (fair) bids beyond the fact that at least $2B were accepted at each auction.