Treasurys Extend Losses After Weak 30-Year Bond Auction

Thursday, 11 Aug 2011 01:51 PM

 

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The U.S. Treasury sold $16 billion worth of 30-year long bonds at a poorly received auction Thursday, with investors showing the weakest overall demand in 2 1/2 years and foreigners largely steering clear.

The auction suffered from the extreme volatility sweeping through global financial markets recently, which have been roiled by a damaging political battle over the U.S. budget and a downgrade of the U.S. credit standing.

Investors submitted bids worth 2.08 times the amount on offer, the lowest since February 2009. A measure of foreign demand — the indirect bidder category — accounted for just 12 percent of the sale, the lowest since February 2008.

In the open market, the 30-year bond lost 5 points in price immediately after the dismal auction results were released.

The 30-year Treasury bond was last down 4 9/32 in price and yielding 3.731 percent, up from 3.52 percent at Wednesday's close. The benchmark 10-year Treasury note was yielding 2.301 percent, up from the 2.14 percent high yield at Wednesday's well-received auction.

Earlier in the day, investors turned to upbeat earnings results from Cisco and a better-than-expected labor market report as reasons to shift out of safe-haven debt, though stocks may just appear particularly attractive after a steep slide in recent days.

The slide in Treasurys followed weeks of stock losses and bond gains generated by fears of an economic slowdown, a confidence-sapping U.S. credit downgrade and worries about problems with European sovereign debt.

"It's been a crazy week with lots of volatility, so bonds could go right back into positive territory very fast if stocks lose these current gains," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.

© 2014 Thomson/Reuters. All rights reserved.

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