30-year Treasury auction pulls in buyers

Yields are higher than expected and beat the yield at a February auction. Stocks move higher in response.

By Charley Blaine Apr 8, 2010 1:49PM
Traders © Colin Anderson/JupiterimagesUpdated at 1:50 p.m. ET

The Treasury auctioned $13 billion in 30-year bonds today at a slightly higher-than-expected yield, but demand for the issue was stronger than expected.

The auction produced a yield  of 4.77%, a touch higher than the expected 4.768% yield. That was due to less-than-expected demand from foreign central banks.
The yield was higher than a 4.679% yield at an auction on March 15 -- but better than a 4.72% yield at a Feb. 11 auction. The results were strong enough that the iShares Barclays 20+ year Treasury Bond (TLT) exchange-traded fund trimmed its loss from 18 cents to 2 cents at $88.71.

The bid-to-cover ratio, the closely watched measure of investor demand, was 2.73, meaning there was $2.73 in bids for every dollar auctioned. The bid-to-cover ratios for the previous 10 auctions was 2.55, Bloomberg News said.

This was the last of three important auctions of Treasury notes. The demand for the notes was stronger than expected and should allay fears that the government will have problems financing its deficits.

Stocks moved higher after the auction. The Dow Jones industrials ($INDU), which had been up about 20 points ahead of the auction, widened its gain to 37 points at 10,935 by 1:40 p.m. ET. iShares Barclays 20+ Year Treasury Bond ETF

The rally in stocks pulled some money from bonds, and yields overall were higher. The 10-year Treasury yield was at 3.886%, up from 3.863% on Wednesday.

While it's fair to say the auction went reasonably well, one area of concern was indirect bidders, including foreign central banks, which bought 36.7% of the issue. That's down from the 40.6% average of the prior 10 auctions.

Presumably, that's a reflection of the reluctance of China and others to buy U.S. debt.

At the same time, the turmoil surrounding Greece's debt and investor worries about the euro may have helped demand for the bonds.
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