The recent Treasury auction of 30-year bonds on Thursday did not bode well, reflecting a hesitancy among investors to own long-dated government securities.
Investors participating in the auction were offered a yield of 4.769%, which was 0.051 percentage point higher than the yield observed in pre-auction trading. This difference, commonly referred to as a tail, indicated a weak auction where the U.S. government had to entice investors with a premium over the market in order to incentivize buying their debt.
In a surprising turn of events, primary dealers who typically purchase any remaining supply not bought by investors had to accept a substantial 24.7% of the debt being offered. This is more than double the average of 12% seen over the past year.
Analyst Ben Jeffery from BMO Capital Markets commented on the auction, stating, “Today’s 30-year auction was very weak.” It is important to note that this particular auction followed an uneventful 10-year auction held the day before.
Following the auction, the yield on the 30-year bond rose by 0.143 percentage point to reach 4.797%. This reaction is to be expected – when demand weakens, yields generally increase, and vice versa when demand is strong.
The stock market also responded negatively to the auction. The S&P 500 experienced a decline of 0.3%, while both the Dow Jones Industrial Average and the Nasdaq Composite saw drops of 0.3% and 0.2%, respectively.
