Borrowing quantum maintained
The monthly auction for 30-year Treasury bonds, or T-bonds, was held on January 14. It was for $13 billion—the same as December. Stock (SPY) (DIA) and bond (BND) investors watch the auctions. Long-term Treasury yields (TLT) reflect economic growth and inflation expectations. They also affect the returns on the real estate sector.
- The auction size was set at $13 billion—the same as December’s auction.
- The issue’s coupon rate was set at 3%—same as December and November.
- The high yield for the auction fell for the second straight month to 2.430%—compared to 2.848% in December. This was the lowest on record.
Bid-to-cover ratio falls
The bid-to-cover ratio for the 30-year T-bonds auction fell by ~16% to 2.3x month-over-month. This was lower than the 2014 average of ~2.5x. The bid-to-cover ratio fell even though the borrowing quantum was the same.
Market demand weakens
Market demand for the securities fell to 62.5% of the competitive accepted bids—compared to 74.1% in December’s auction. The share of primary dealers increased to 37.4%—from 25.9% in December. It increased because of comparatively low investor demand.
Although direct and indirect bidding weakened, indirect bids were only down slightly. The percentage of indirect bids includes bids from central banks overseas. The percentage of indirect bids fell from 49.8% to 48.9% month-over-month. The share of direct bids includes bids from domestic money managers. The share of direct bids decreased to 13.7% in January—down from 24.3% in December.
The high yield awarded at the January auction was at 2.430%—the lowest on record. It was down from 2.848% in December. After the auction, 30-year Treasury yields moved lower in the secondary market. Yields fell two basis points. They fell from 2.49% to 2.47% on January 14.
Demand for the 30-year Treasury bond was weaker than in December. Before the auction, investors satisfied their demand for the long bond from the secondary market.
Ten-year T-notes auction
In the next part of this series, we’ll analyze the key highlights from last week’s ten-year Treasury notes, or T-notes, auction.