(Bloomberg) — Treasury yields bounced from near session lows after demand for an auction of 30-year bonds was weaker than expected.
The auction drew a yield of 1.895%, more than three basis points higher than its yield in pre-sale trading moments before the 1 p.m. New York time bidding deadline, a sign that dealers overestimated demand. After the auction, the yield on existing 30-year Treasuries briefly erased a decline of as much as five basis points.
It was the second straight 30-year auction to miss the mark by a wide margin, and was nowhere near as bad as last month’s, which missed by more than five basis points. There’s been extreme volatility in short-maturity yields in particular over the past month reflecting shifting expectations for Federal Reserve policy to address elevated inflation.
While 30-year yields in the past week had rebounded from levels near the lowest of the year, traders said that rally depleted interest in Thursday’s sale.
“We exhausted the buying energy with last week’s rally to 1.67% on Friday,” said David Gagnon, managing director in U.S. Treasury trading at Academy Securities, Inc.
The results also reflect inflation anxiety, which picked up last month on the day of the last 30-year auction when October consumer prices were reported to have risen at the fastest pace since 1990.
Government data due Friday is expected to show an increase of 6.8% for the November consumer price index. That would be the highest rate since Ronald Reagan was president in the early 1980s.
“There’s some skittishness about getting long this much duration before CPI,” said George Goncalves, head of U.S. macro strategy at MUFG Securities Americas Inc. “It’s an insurance back-up in case CPI surprises and the rate curve sells off.”
More stories like this are available on bloomberg.com
©2021 Bloomberg L.P.
