The Treasury sold $22 billion of 30-year bonds Thursday at a high yield of 5.618 percent, the most the government has paid to borrow for three decades since August 2000, when the auction cleared at 5.697 percent. The internals were comfortably above average: the bid-to-cover ratio was 2.54 against a six-auction average of 2.41, indirect bidders including foreign investors took 72.3 percent versus 69.1 percent on average, directs took 20.9 percent, and primary dealers were left with just 6.8 percent, well below their usual 10.3 percent share. The sale cleared essentially on the screws, roughly flat to the when-issued level of 5.617 percent.
It was the second strong auction in as many days. Wednesday’s $39 billion 10-year cleared at 5.300 percent, the highest since November 2000, with a record 80.3 percent indirect take and a 2.77x bid-to-cover. Together the two sales paid down the fear of a buyer strike at generational yields: foreigners retreated from Tuesday’s 3-year (57.6 percent indirects, the lowest since February) but returned in size once rates crossed 5.3 percent.
The market read it as a top, at least for now. The 10-year yield fell 5bp to 5.227 percent after the results, the 30-year dropped 5.9bp to 5.602 percent, and the 2-year eased 1.3bp to 4.751 percent, the second rally day of the week. The tape had been pressured earlier by oil before crude pulled back on President Trump’s remark that the US will not attack Iran before November’s midterm elections. Infrastructure Capital’s Jay Hatfield called 5.30 percent on the 10-year the probable peak, arguing markets have seen “peak pessimism about Fed rate increases” and that the Fed will manage only one more hike, not the three priced. That is the direct counter to Pimco’s overnight call for 6 percent: the auction record shows buyers stepping in at 5.3 to 5.6 percent rather than capitulating.