30-year Treasury auction draws strong demand as yields keep climbing
Thursday’s $22B auction of 30-year U.S. Treasury bonds (US30Y) multi-year high yields and mounting expectations of imminent Federal Reserve rate hikes.
The auction generated historically robust demand, with the new securities awarded at 5.308%—nearly three basis points below pre-auction trading levels. Because the bonds were priced lower than anticipated, aggressive bidders shut out investors holding out for higher yields.
WI level at the time of the auction 5.335%
Tail -2.7 basis points versus 013 basis points average
Bid to cover 2.61X versus average of 2.38X
DIrects (domestic buyers) 18.3% versus 22.1% average
Indirects (international buyers) 79.5% versus 66.4% average
Dealers (they get the rest) 2.2% versus 11.5% average.
The big buyer was international at 79.5%.
Underscoring this fervent appetite, Wall Street primary dealers were left with a record-low 2.2% of the total sale, a key indicator that direct end-investors eagerly absorbed the supply.
This blockbuster auction unfolded against a broader surge in government debt yields, heavily influenced by spiking oil (USO) (BNO) prices that threaten to stall disinflation. Following the sale, the 30-year benchmark (US30Y) touched levels unseen since 2007 around 5.36%, while the two-year note (US2Y) (SHY) breached 4.5% for the first time since 2024. The 10-year tenor (US10Y) (IEF) also made a new multi-year high at 4.95%.
Consequently, traders are hastily recalibrating their monetary policy outlook. Markets now price in a roughly 70% probability of a Fed rate hike next week, fully anticipating a move by October. However, for long-term investors, the opportunity to lock in a risk-free 5.3% return for three decades clearly proved too attractive to pass up.