30-year Treasury bond auction draws strong bids

AP News
Posted: Oct 13, 2011 4:59 PM
30-year Treasury bond auction draws strong bids

Treasury prices rose Thursday for the first time in more than a week, while a strong auction for 30-year bonds showed that traders remain hungry for ultra-safe U.S. debt.

Before Thursday's rise, Treasurys had fallen since last Tuesday. Encouraging signals from Europe led traders to buy riskier investments that can generate bigger returns. European leaders are trying to hash out a solution to their debt crisis, which has weighed on financial markets for months.

The slide followed a historic rally that pushed the yield on the 10-year note to record lows.

The price of the 10-year Treasury note rose 28 cents for every $100 invested, pulling its yield down to 2.18 percent at 3:43 p.m. Eastern time Thursday, from 2.21 percent late Wednesday.

Earlier Thursday, the Treasury Department auctioned $13 billion in bonds at a yield of 3.12 percent. That's lower than the market rate for 30-year Treasurys at the time of the auction, indicating that bidders paid relatively high prices.

The auction also drew a large number of bids relative to the value of bonds sold. That figure, known as the "bid-to-cover" ratio, reflects the level of demand for Treasurys.

The 30-year bond rose 88 cents per $100 invested, pulling its yield down to 3.15 percent from 3.19 percent late Wednesday.

Thirty-year bonds are attractive to traders in part because the Federal Reserve is buying them. The Fed's buying this month is a sure thing, and traders are willing to pay more when they know there will be a buyer.

The Fed is buying $41 billion of long-term Treasurys and selling the same amount of shorter-dated Treasurys. It wants to lower long-term interest rates to encourage lending and investment.

When demand for Treasurys increases, yields fall. Traders are willing to accept an even tinier return in exchange for holding an investment seen as very safe.

The two-year Treasury note's yield fell to 0.27 percent from 0.29 percent. The yield on the three-month Treasury bill was unchanged at 0.02 percent. Its discount wasn't available.