Treasury Department auctions $16 billion of 30-year bonds at a high yield of 3.044%

Traders in the 10-year bond options pit at the Chicago Board of Trade signal orders.
Frank Polich | Reuters

Long yields briefly pared losses on Thursday as the U.S. government's auction of 30-year bonds drew weak demand.

The Treasury Department auctioned $16 billion in 30-year bonds at a high yield of 3.044 percent, which was the highest since November. The bid-to-cover ratio, an indicator of demand, was 2.20. That was well bellow its recent average of 2.41.

Indirect bidders, which include major central banks, were awarded 50.8 percent, above the 49 percent average. Direct bidders, which includes domestic money managers, brought 11 percent, versus a recent average of 16 percent.

The soft auction follows solid 3-year and 10-year note sale earlier this week.

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"Bottom line, as the natural buyer of a 30 year piece of paper is more from insurance companies and pension funds enabling them to better match assets and liabilities, it's a different animal than other areas of the curve in terms of gauging sentiment," said Peter Boockvar, chief market analyst at The Lindsey Group.

Benchmark 10-year Treasury note yields were lower at 2.23 percent after the sale, having closed at 2.27 percent on Wednesday following choppy trading. U.S. 30-year bond yields were down 3 basis points at 3.05 percent. The yield touched 3.08 percent moments after the announcement.

Meanwhile, the yield curve between five-year notes and 30-year bonds steepened to 154 basis points, the highest since October 29.

With the yield above 3 percent for the first time since early December "I find it unusual that demand wasn't better. Even with today's modest decline, the 30 yr yield is up 15 bps on the week," Boockvar said.

Treasury yields tumbled earlier as the dollar came under pressure following a new batch of mixed U.S. data that pushed back expectations of when interest rates in the world's largest economy will rise.


Earlier, a Labor Department report showed initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 264,000 for the week ended May 9, within a whisker of a 15-year low reached two weeks ago.

Separately, U.S. producer prices resumed their downward trend in April as the cost of energy fell and a strong dollar kept underlying inflation pressures benign, supporting views that the Federal Reserve will only raise interest rates later in the year.

The Labor Department said on Thursday its producer price index for final demand fell 0.4 percent last month, declining for the third time this year. The PPI increased 0.2 percent in March.

The Federal Reserve will eye both the employment situation and inflation for signs the economy is ready for an interest rate hike. Consensus is for a rate hike in September or later in the year, but central bank policymakers have not ruled out a June liftoff.

—Reuters contributed to this report.