Banking & Finance

A Poor $16 Billion 30-Year Treasury Long Bond Auction

The U.S. Treasury has not had the best week when it comes to Treasury debt auctions.  The 30-Year $16 billion Long Bond auction was a dud.  You have to consider that the 30-year ‘on the run’ Treasury was yielding 2.79% after a 5 basis point rise shortly before the auction results were announced.  This auction went out with a yield of 2.825%, indicating weak demand.  The bid-to-cover ratio was only 2.41 (under a 2.65 average) and direct bidders were only 7.7% of the offering. The indirect bidders (foreign central banks and entities) did manage to buy 36.7% of the offering.

We saw that the 30-year yield was already at the highest yield in about a month and a half and that was before the auction.  While this 30-year yield is still extremely low, it is important to know that the bottoming out in yields (highest in face value, of course) was roughly 2.45% back on July 25.  In short, the rise in rates was nearly 40 basis points from trough to peak in the auction and that is a rapid rise in rates.

It was just back on July 27 that we signaled the rapid rise in rates beginning to take place.  That was ahead of the FOMC meeting and ahead of the better than expected Payrolls data released last week.

The 30-Year Long Bond has hit a multi-week high yield as the appetite for risk has come back into play since the dog days of June.

We would note that the prices on the The price on the iShares Barclays 20+ Year Treasury Bond (NYSEMKT: TLT) was down 0.7% at $124.31 and the ProShares UltraShort 20+ Year Treasury (NYSEMKT: TBT) was up 1.3% at $15.76 right before the auction results were released.

JON C. OGG