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Bonds turn flat; 30-year adds to post-auction losses

U.S. Markets Overview: Treasurys chart

U.S. Treasurys were mostly flat on Friday as the 30-year long bond again surrendered price gains following an unexpectedly costly $16 billion government auction of new 30-year debt.

Yields on 30-year bonds, which have been favored in recent months by pension fund buyers, stood at 3.47 percent, reflecting a price loss of 9/32 on Friday.

A week ago, the yields on 30-year bonds touched a low of 3.34 percent that had not been seen since June 19 last year.

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"There's a little bit of profit-taking," said Kim Rupert, managing director at Action Economics in San Francisco. "The 30-year is near its most expensive for the year, and there's probably overhang from yesterday's auction. That was a little sour."

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Thursday's 30-year auction, the last of three this week by the Treasury Department selling $69 billion of new debt, came with a high yield of 3.440 percent.

Demand paled compared with recent auctions and suggested some recent buyers had stayed on the sidelines, according to analysts.

"The bid/cover ratio measured just 2.09 in comparison to the six auction average of 2.41 (in fact, May's bid/cover was the lowest since 2011)," Janney Capital Markets analyst Guy LeBas said in a commentary. "It seems that we've finally found a level at which the demand for duration is fading."

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That 3.440 percent high yield was more than two basis points more than the market level signaled just before the auction and drove selling of 30-year bonds even as other Treasury maturities rose or steadied. The 30-year fell 4/32 in price on Thursday.

On Friday, other Treasurys were mostly down or flat in price. Ten-year Treasury notes yielded 2.63 percent, reflecting a price loss of 2/32.

Thirty-year Treasurys have risen sharply this year, in part on reported buying by pension funds that seemed indifferent to price increases.