30-Year Treasury Auction Sees Shockingly Low Auction Yield

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Investors have decided that the U.S. government should only have to pay 3.074% to borrow money for its 30-year bonds in the latest long bond auction. There was also a bid-to-cover ratio of 2.4, meaning that $2.40 was tendered for bonds for every $1 that the Treasury accepted.

With so much market volatility of late, it may seem expected that such a low yield would go off for the bond auction rate. The Treasury’s long bond is technically a two-year and 10-month maturity, and it comes with a 3.125% coupon. Still, isn’t the Federal Reserve expected to start raising interest rates in the middle of 2015, and isn’t the Fed exiting the bond-buying game here after October?

Some 94.39% was taken at the high. Also seen was that direct bidders took 21.5% and indirect bidders took 46.21% of the bids.

This came on a day when the Dow was hitting a -300 reading on the results, and the simultaneous drop was almost 36 points in the S&P 500. Perhaps the only surprise was that bonds did not respond even better. The on-the-run Treasury yield was 3.07% on last look, and the yield for the on-the-run 10-year Treasury was 2.33%.

If investors are truly worried an out of control interest rate hike is coming soon, they are sure voting differently with their dollars. Imagine what a 3.07% yield means — you almost double your money in 30 years, without considering that you get to pay tax on the Treasury income each year along the way!

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