U.S. Auctions Raise $125B as 30-Year Yield Tops 5%
Treasury sold $125 billion May 11-13 as the 30-year yield hit 5.046%, the highest since 2007, and bid-to-cover ratios across the three auctions fell below 2.55.
The U.S. Treasury sold $125 billion of new notes and bonds in auctions held May 11-13, with the offerings settling on May 15. Weak demand at the long end pushed the 30-year yield to 5.046%, the highest level for that maturity since August 2007, and bid-to-cover ratios across the three sales were below 2.55.
The Treasury offered $58 billion of 3-year notes, $42 billion of 10-year notes and $25 billion of 30-year bonds. The 3-year auction cleared at a high yield of 3.965% with a bid-to-cover ratio of 2.54; indirect bidders, typically foreign institutions and central banks, received about 63% of competitive allotments. The 10-year sale priced at a high yield of 4.468% with a bid-to-cover of 2.40; the result priced above pre-auction levels and pushed 10-year yields higher in spot trading. The 30-year auction carried a coupon of 5.000% and cleared at a high yield of 5.046% with a bid-to-cover of 2.30; indirect bidders took roughly two-thirds of competitive awards in that sale.
Primary dealers, which are required to participate in Treasury auctions, took a smaller share of allotments than in recent offerings. Bid-to-cover ratios for the week were below historical averages of about 2.5 to 2.6, with the weakest coverage at the long end of the curve.
April consumer and producer price readings came in hotter than economists had expected. Oil briefly rose above $100 a barrel amid tensions tied to Iran. At the same time, the federal government continued to issue debt at a rapid pace. Those factors coincided with investors demanding higher yields to buy new Treasury supply.
Higher 30-year Treasury yields affect borrowing costs that reference Treasury benchmarks, including mortgage rates, auto loans and corporate debt pricing. Selling new government debt at higher yields increases interest expense on outstanding federal debt balances. Higher long-term yields also change valuations for long-duration assets in financial markets.
Market participants said they will watch upcoming May inflation data and any Federal Reserve communications for signs of whether auction demand and long-term yields follow a temporary path or continue to rise.
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