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US 30-Year Bond Auction Sees Solid Demand, But Foreign Buyers Plunge

The Treasury wrapped up a week of $120 billion in bond sales with a 30-year auction that drew solid results, but a sharp tumble in foreign demand.

The U.S. Treasury sold $24 billion in 30-year bonds Thursday, wrapping up a week where $120 billion in new paper was released into the market, marking one of the sternest tests interest rate markets have endured so far this year.

Foreign demand for the long-dated bonds, which are the most sensitive to interest rate changes, fell more than 30 percentage points from the previous sale in early February, with so-called indirect bidders taking just 60.55%. The overall auction yield on the bond sale was 2.295%, up 36.2 basis points from last month, while the bid-to-cover ratio, a key gauge of demand, edged modestly higher, to 2.28 from 2.18.

Earlier this week, the Treasury sold $38 billion in 10-year notes and $58 billion in 3-year notes in auctions that drew mostly solid foreign demand, with further downward pressure on yields coming prior to the market open when the European Central Bank pledged to significantly' increase the pace of its monthly asset purchases in order to stem the tide of rising bond yields amid a sputtering economic recovery.

Benchmark 10-year note yields were marked at 1.518% following results of the 30-year auction, the Dow Jones Industrial Average extended gains, rising 314 points to 32,610 in the wake of the $24 billion sale.

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This week's bond sales -- part of a $274 billion quarterly funding target that was established before the Senate passed President Joe Biden's $1.9 trillion COVID relief bill -- comes amid a modest easing of inflation expectations even as investors look to a faster-than-expected post pandemic recovery and oil prices hover at the highest levels in more than two years.

Headline February CPI was pegged at an annual rate of 1.7%, Commerce Department data indicated Wednesday, but so-called core inflation, which strips out volatile components such as food and energy prices, eased to a monthly pace of 0.1% from the previous month.

The so-called breakeven rate between five-year Treasury bonds and five-year inflation protected securities, a key market gauge for consumer price increases, was marked at 2.38%m down from the 2008 high of 2.5% it hit last Wednesday but still firmly ahead of the Fed's 2% inflation target.

The Treasury sold $58 billion in 3-year notes at an auction-high yield of 0.335%, with foreign demand falling just below average at 47.8%. Overall demand for the new paper, however, was solid, with bidders seeking $2.69 for every $1 on offer from the government, the highest since June of 2018.