The Treasury Department’s sale of 30-year bonds on Thursday drew the softest demand in five months, closing out a quarterly refunding in which all three auctions showed investors reluctant to load up on long-term U.S. debt.
Treasury sold $25 billion of new bonds due November 2056 at a high yield of 5.441%, with a 5.375% coupon. That was about 0.4 basis point above the yield in when-issued trading just before the 1 p.m. deadline, a small tail that signals the government had to pay up slightly to clear the sale. The bid-to-cover ratio, a gauge of demand, fell to 2.36 from 2.54 at the October reopening and below its six-auction average of 2.44. Investors put in about $59 billion of bids.
Dealers pick up the slack
Indirect bidders, a category that includes foreign central banks and asset managers, took about 68.1% of competitive awards, down from 72.3% in October. Direct bidders took about 20.5%. Primary dealers, who are obliged to bid, were left with about 11.4%, up from 6.8% last month, which investors read as a sign of weaker end demand. The Federal Reserve’s portfolio received about $5.1 billion of additional bonds outside the offering to replace maturing holdings.
The yield was well below October’s 5.618%, but that reflects a rally in bond prices over the past month rather than stronger appetite at the auction. The 30-year yield closed at about 5.43% on Thursday and the 10-year at about 5.10%, its highest in three weeks.
A refunding week of soft bids
The sale completed Treasury’s $125 billion November refunding. The three-year note sale on Monday drew a 2.53 bid-to-cover, and the 10-year sale on Tuesday cleared at 5.020% with a 2.46 ratio, both weaker than in October. The new bonds settle Monday, Nov. 16.
For corporate borrowers, long-term Treasury yields are the base rate for everything from utility bonds to commercial mortgages, so softer demand at the long end feeds straight into financing costs. The Fed, which held rates at 3.75% to 4% in October, next meets Dec. 8-9.
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