The Treasury’s $13 billion sale of 30-year bonds Thursday attracted the most demand in more than eight years from a class of investors that includes foreign central banks amid signs of financial stress in European markets and relatively attractive U.S. yields.
Indirect bidders purchased 53.2 percent of the debt at the auction, the highest level since the February 2006 offering of the securities. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.40, matching the average for the past 10 sales, even as the auction yield was the lowest in a year. Long bonds have returned 13.4 percent this year, the most since 2010, according Bank of America Merrill Lynch index data.
“The differential in spreads between some of the peripheral European debt and Treasurys,” bolstered demand, said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “That spread is compressed, so people are looking at that in terms of comparative markets and showing some relative value with the Treasurys market.”
The yield on the current 30-year bond fell one basis point, or 0.01 percentage point, to 3.37 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. Benchmark 10-year note yields fell two basis points to 2.54 percent and touched 2.49 percent, the lowest level since June 2.
The 30-year securities drew a yield of 3.369 percent, the lowest auction yield since June 2013, and compared with a forecast of 3.372 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers.
The securities are yielding 122 basis points more than comparable German debt, compared with the 75-basis-point average during the past five years.
The rally in U.S. 30-year bonds compares with a gain of 3 percent in the broader U.S. Treasurys market this year, according to Bank of America Merrill Lynch indexes. Long bonds lost 15.1 percent in 2013, versus a 3.4 percent decline by Treasurys overall.
“There is structural demand for duration that just keeps showing up,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “It was a decent auction.”
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 11.1 percent of the bonds, compared with an average of 16.6 percent at the last 10 auctions.
The Treasury has received bids of 3.04 times the $1.184 trillion in notes and bonds sold at auction so far this year, compared with bids of 2.87 times the $2.14 trillion at last year’s offerings.
Thursday’s auction was the final of three note and bond offerings this week. The U.S. sold $27 billion of three-year debt on July 8 at a yield of 0.992 percent and auctioned $21 billion of 10-year debt Wednesday at a yield of 2.597 percent.
The sales will raise $5.1 billion of new cash, as maturing securities held by the public total $55.9 billion, according to the Treasury.
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