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30-Year Bond Auction Sees Lower Foreign Demand Amid Mixed Inflation Data

The Treasury wrapped up a key week of bond sales with a $27 billion 30-year auction that saw weaker foreign demand amid mixed inflation and growth signals.

The U.S. Treasury capped a busy week of new bond auctions Thursday with the sale of 30-year paper that attracted modestly weaker foreign demand following a mixed series of readings on domestic inflation. 

The Treasury sold $27 billion in new 30-year bonds at a high yield of 2.04%, around 4 basis points higher than at the previous sale on July 13 and just ahead of the open-market yield that the paper traded at for most of the morning session.

Indirect bidders, which are comprised mostly of foreign central banks, took down 60.65% of the sale, data indicated, below the long-term average and well south of the 77% indirection participation recorded in yesterday's $41 billion 10-year auction

Long yields narrowed to 2.02% in the immediate moments following the sale, which had a bid-to-cover ratio of 2.21, a figure that suggests investors bid for nearly $60 billion worth of bonds during the auction process. Benchmark 10-year note yields, meanwhile were marked at 1.371%.

The auction caps a solid week of sales for the Treasury, which said last week that it plans to sell $673 billon in new bonds this quarter as part of a $1.5 trillion second-half funding target that is predicated on lawmakers lifting a suspension of the debt ceiling, which expired last month at $22 trillion.

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Markets have been closely tracking this week's sales, however, amid conflicting views within the Federal Reserve as to when, and how, to begin slowing the pace of the central bank's $120 billion in monthly bond purchases amid a solid economic recovery highlighted by last month's 943,000 in net new jobs, ISM activity readings that are well over the 60 mark that separates growth from contraction and record high stock markets..

Dallas Fed President Robert Kaplan, in fact, told CNBC Wednesday that he wanted the Fed to announce tapering plans in September and begin the gradual winddown in purchases the following month.

Some of that talk was tempted by yesterday's CPI data which showed the steepest month-on-month decline in more than a year last month, but then resurfaced after today's July PPI reading showed a much faster-than-expected reading of 7.8% for factory gate inflation over the same month - the largest annual increase in more than a decade.  

However, companies ranging from General Motors GM to Apple  (AAPL) - Get Apple Inc. (AAPL) Report, Amazon  (AMZN) - Get Amazon.com, Inc. Report and Tesla  (TSLA) - Get Tesla Inc Report cautioning that supply chain disruptions would impact revenue growth and margin prospects in the months ahead, has some investors re-thinking growth prospects at home while rising Delta-variant infections in Asia are blunting sentiment in markets outside of western Europe.

Southwest Airlines  (LUV) - Get Southwest Airlines Co. Report added to the concern Wednesday when the carrier slashed its current-quarter revenue forecasts amid a jump in cancellations linked to the Delta-variant surge in many southern states.