US 30-year bond auction tails as demand disappoints for second straight day

• High yield 5.441% vs 5.437% WI

• Tail of 0.4 basis points

• Bid-to-cover 2.36x vs 2.44x average

• Dealers awarded 11.39% vs 9.49% average

The US Treasury sold $25 billion in 30-year bonds on Thursday in a disappointing auction that adds to signs of softening demand at the long end of the curve.

The auction stopped at 5.441%, a 0.4 basis point tail compared to the 5.437% when-issued yield. That's a deterioration from last month's 0.1 basis point tail and compares unfavourably with the six-auction average of a 0.1 basis point stop-through.

The bid-to-cover ratio fell to 2.36x from 2.54x previously, also below the 2.44x six-auction average.

The breakdown of buyers wasn't particularly encouraging either. Indirect bidders, which include foreign central banks and other institutional investors, took 68.11%, down from 72.32% last month and below the 70.49% average.

Dealers were left holding 11.39%, up sharply from 6.79% in the previous auction. Direct bidders took 20.5%, roughly in line with recent averages.

The results follow Tuesday's soft 10-year auction and suggest that investors remain reluctant to aggressively add duration, even after yields cheapened ahead of the sale.

The good news is that the high yield was well below last month's 5.618%, but that's more a reflection of the broader rally in bonds than stronger underlying demand.

The takeaway is another weak auction, with the higher dealer allocation particularly troubling. It's not a disaster, but it's hardly a vote of confidence in the long end of the Treasury market.

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