Unites States Treasury Auctions After S&P Downgrade

The 3 year Treasury auction for $32 billion this week had a high yield of 0.50% ( the prior auction in July had a yield of 0.670%), a bid-to-cover of 3.24, foreign purchases were 35.36%, and direct purchases were 31.66%.

The 10 year Treasury auction for $24 billion had a high yield of 2.140% (the prior auction in May had a yield of 3.210%), a bid-to-cover of 3.29%, foreign purchases of 46.92%, and direct purchases of 11.09%.

The 30 year Treasury auction for 16 billion had a high yield of 3.750% (the prior auction in July had a yield of 4.380%), a bid-to-cover of 2.08 (average for 6 months is 2.70), foreign purchases of 12.16% (weakest demand in 2 1/2 years --- averages 40%), and direct purchases of 19.62% (from 10.9% last auction).

The yield drops in all three, particularly the 30 year Treasury, were impressive and a strong vote for the strength and safety of United States government bonds.  For the yield to come out any lower on the 30 year, it would have meant paying over the face value of the bond.  This was only the second 30 year auction in history in which all winning bids achieved par value.  While there was some disorderly bidding and a large tail (1.3% in cash terms), unlike European distressed bond auctions where those factors resulted in nightmares, the result for this 30 year U.S. Treasury was a winner's curse.

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