30-YEAR TREASURY AUCTION TAILS, BONDS FALL

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tail

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The results of today's 30-year Treasury auction are out.

The highest yield at the auction was 3.355%, above the 3.324% "when-issued" level.

In other words, the auction "tailed," indicating weak demand.

(The "tail" is the difference between the highest yield on the Treasuries during the auction and the expected high yield when the auction first gets started – the "when-issued" level.)

The bid-to-cover ratio, which measures the dollar amount of bids versus the dollar amount of bonds actually auctioned,  fell to 2.47 from 2.53 at the last 30-year auction.

Primary dealers purchased 51.7% of the bonds issued at the auction.

Only 8.5% of the issue was awarded to direct bidders – those that bypass the primary dealers on Wall Street and buy straight from the Treasury.

Indirect bidders – foreign central banks and the like – took down 40.2% of the issue.

Bonds are selling off on the news. The chart below shows the initial market reaction in 30-year U.S. Treasury futures.

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30yr ust futures

Thinkorswim

This week, other government auctions for shorter-dated Treasuries have produced lackluster results.

Demand for the 10-year U.S. Treasury note, proxied by the bid-to-cover ratio, fell to its lowest level in 10 months at yesterday's auction of 10-year notes.

That auction finished "on the screws," which means the highest yield matched the when-issued level. So, no tail.

Yet falling bid-to-cover ratios and today's tail in the 30-year auction reinforce the theme that the market is jittery in the face of all of the talk about Fed tapering.

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