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Fundamental Market Demand Rose for 30-Year Treasury Bonds

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30-year Treasury bonds

The monthly auction for 30-year Treasury bonds (or T-bonds) was held on December 10, 2015, for $13 billion. This was $3 billion lower than the previous month.

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Key takeaways

  • The auction was held on December 10, 2015.
  • The coupon rate was set at 3.0%, the same as in the previous month.
  • The high yield fell to 3.0% in December, from 3.1% in November.
  • The bid-to-cover ratio rose marginally by 0.4% and came in at 2.42x in the December auction. So far in 2015, the ratio has averaged 2.34x lower than the 2014 average of 2.47x.

Yield analysis

The yield on 30-year Treasury bonds rose by one basis point in the secondary market, from 2.97% on December 9 to 2.98% on December 10.

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Fundamental demand rose

Market demand rose to 74.3% of the accepted bids compared to 70.4% in November’s auction. Indirect bids rose and came in at 63.9% in December as compared to 60.3% in November. Indirect bids, which are bids from foreign central banks, reflect overseas demand for Treasury bonds.

Direct bids nudged up to 10.4% in December from 10.2% in November. The share of direct bids includes bids from domestic money managers such as Wells Fargo (WFC) and Invesco (IVZ).

The primary dealers’ share fell from 29.6% to 25.7% month-over-month due to improvements in accepted bids from indirect bidders.

Primary dealers act as market makers and include companies such as Goldman Sachs (GS) and Citigroup (C). They are obliged to take the excess supply of an auction.

Investment impact

Due to a fall in long-term yields in the secondary market, returns of long-term mutual funds were positive.

The Wasatch-Hoisington US Treasury (WHOSX) invests ~100% of its assets in Treasury securities with maturities below 10 years. The weekly return of the fund was up by 2.7%.

The Dreyfus US Treasury Long Term Fund (DRGBX) invests ~92% of its assets in Treasury securities with maturities below 10 years. The week-over-week return of the fund came in at 2.2%.

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