Weak demand for record-size 30-year U.S. debt auction

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NEW YORK (Reuters) – The record-size auction of $26 billion 30-year bonds by the U.S. Treasury Department on Thursday sold poorly, with the bid-to-cover ratio, a measure of overall demand, at 2.41, the lowest since July 2019.

Investors had modest appetite for the offering, which was $4 billion larger than the last auction of new 30-year bonds in May. The Treasury last week increased auction sizes across the curve and said that it plans to continue to shift more of its funding to longer-dated debt in coming quarters as it finances measures to offset the impact of the coronavirus epidemic.

Yields on the 30-year bond (US30YT=RR) had risen to their highest level in a month in anticipation of the additional supply. The yield continued to rise following the auction after the new debt sold at a high yield of 1.406%, the second-highest rate offered since the beginning of the coronavirus pandemic Treasury data showed.

Indirect bidders, a proxy for foreign buyers, took 59.83% of the supply, while direct bidders took 11.87%. Primary dealers, who are responsible for buying all remaining supply after the indirect and direct bids, took 28.3%, higher than the May takedown of 21.4%.

Earlier in the week, record-sized auctions of new 10-year and 3-year notes were sold to strong demand. The yields on both had risen ahead of the auction, making them more attractive to investors.