30-year Treasury bonds
The monthly auction for 30-year Treasury bonds, or T-bonds, was held on September 10 for $13 billion. It was $3 billion lower than the previous month.
- The auction was held on September 10.
- The coupon rate was set at 2.875%. This was the same as the previous month.
- The high yield rose to 2.98% in September from 2.88% in August’s auction.
- The bid-to-cover ratio rose 12.40% and came in at 2.54x in the September auction. So far in 2015, the ratio has averaged 2.31x. It’s lower than the 2014 average of 2.47x.
The yield on 30-year T-bonds fell by three basis points in the secondary market from the previous day to 2.95% on September 10.
Fundamental demand rose
The demand for long-term bonds rose amid the expectation of a rate hike by the Fed during the FOMC (Federal Open Market Committee) meeting. It’s scheduled to be held on September 16–17.
The market demand rose to 73.40% of the accepted bids—compared to 61.80% in August’s auction. Indirect bids came in at 66% in September—compared to 51.90% a month ago. Indirect bids include bids from foreign central banks. They reflect overseas demand for T-bonds.
Primary dealers’ share fell due to improvement in accepted bids from indirect bidders. The share of primary dealers fell from 38.20% to 26.60% month-over-month. Primary dealers act as market makers. They include companies like Goldman Sachs (GS) and Citigroup (C). They take the excess supply of an auction.
The following mutual funds provide exposure to long-term T-bonds. Due to a rise in the long-term yields in the secondary market, the long-term mutual funds’ returns were impacted negatively.
- The Wasatch-Hoisington US Treasury (WHOSX) invests at least 100% of its assets in Treasury securities with a maturity greater than ten years. The fund’s weekly return fell by -1.03%.
- The T. Rowe Price US Treasury Long-Term (PRULX) invests at least 90% of its assets in Treasury securities with a maturity greater than ten years. The fund’s week-over-week return fell by 0.95%.