Borrowing quantum increased
The monthly auction for the 30-year Treasury bond, or T-bond, was held on March 12 for $13 billion. It was $3 billion lower than the previous two auctions. Auctions are watched by stock and bond (BND) investors. Long-term Treasury yields (TLT) reflect economic growth and inflation expectations. They also affect the returns on the real estate sector.
- The overall demand for the 30-year T-bond auction was weak. The bid-to-cover ratio read the lowest since May 2014.
- Indirect bidding remained strong. It was the highest since July 2014.
- The auction size was set at $13 billion. It was $3 billion lower than the auction in February.
- The issue’s coupon rate was set at 2.5%. It was the same as the previous auction.
- The high yield for the auction rose for the second month in a row to 2.68%. It 2.56% in February.
Bid-to-cover ratio falls
The overall market demand, represented by the bid-to-cover ratio, fell by 3.5% to 2.18x month-over-month. This was the lowest since May 2014. So far in 2015, the ratio averaged 2.25x. It’s lower than the 2014 average of 2.47x. The bid-to-cover ratio fell even as the borrowing quantum was reduced.
Market demand falls marginally
Market demand for the securities fell to 63.4% of the competitive accepted bids—compared to 64.8% in February’s auction. As a result, the share of primary dealers rose to 36.6%—from 35.1% in February. This was due to comparatively lower investor demand. Primary dealers include companies like Citigroup (C) and Goldman Sachs (GS).
Direct bidding was weak, but indirect bidding was strong. The percentage of indirect bids includes bids from central banks overseas. They rose to 51.9% in March—from 49.4% month-over-month. This was the highest since July 2014. The share of direct bids includes bids from domestic money managers like Wells Fargo (WFC) and Invesco (IVZ). They fell to 11.6% in March—down from 15.4% in February.
The high yield awarded at the March auction was 2.68%. It was up from 2.56% in February. After the auction, 30-year Treasury yields were flat in the secondary market. They didn’t change. They ended at 2.69% on March 12.
Ten-year T-note auction
In the next part of this series, we’ll analyze the key highlights from last week’s Treasury auction for the ten-year Treasury notes, or T-notes.