US 30-Year Treasury Auction Preview

WHEN

Thursday 13 June 2013, results after 13:00 EST

30-YEAR AUCTION COULD BE A NON-EVENT

The US will aim to sell up to $13bln of debt by reopening reopen its 30-year bond on Thursday. The auction comes against the background of declining demand seen for the 10-year and 3-year treasury auctions earlier this week.Wednesday’s 10-year auction – which many analysts argue will have set the tone for forthcoming US debt sales – saw cover at 2.53 versus cover of 2.7 for the previous 10-year auction, and an average cover of 2.92 over the last year.The fact that treasuries sold-off after the auction may concern some investors. However, demand may have been soft as traders had their eyes on Thursday’s 30-year auction, and of course, next week’s FOMC meeting, before they commit to longer-term debt holdings.The 30-year auction could be “a relatively tamed event with decent demand,” according to George Conclaves, a fixed income strategist at Nomura. Conclaves suggests that “despite a little steepening of late, the [yield] curve is still relatively flat compared to historical standards, making the 30-year relatively rich on the curve.”

Another factor that could hinder Thursday’s 30-year auction is the fact that dealers are net long US treasuries with maturities over 11 years, according to some sources, which may restrict demand.

Looking at previous 30-year auctions, the last one on 9 May 2013 saw $15.988bln sold at a high yield of 2.980%, and covered at 2.53; with direct bidders taking 15.5% of the issue, and indirect bidders taking 38.8%.

This compares to the sale of $12.994bln of 30-year debt on 11 April, which saw a high yield of 2.998%, with cover of 2.49; with direct bids accounting for 19.2%, and indirect bids accounting for 31.4% of the issuance.

The average bid-to-cover ratio for the last six US 30-year debt auctions stands at 2.58. Direct bidders accounted for 15.2% of issuance over the last six 30-year auctions, with indirect bidders accounting for an average of 36.7%.

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