Record-Breaking Demand in the Strongest 30-Year Auction

The 30-year auction this week has been nothing short of remarkable, even being dubbed as the strongest 30-year auction in history. This comes after a lackluster 3-year auction and a mediocre 10-year auction.

Record-Breaking Auction Figures

The high yield started at a whopping 4.389%, a significant increase from the previous month's 4.015%, and the highest since July's 4.405%. The market was not taken by surprise, as the When Issued had already been trading around 4.404%. This meant that the auction stopped through by 1.5bps, marking the first non-tailing 30-year auction since June. The bid to cover ratio was 2.50, a sharp rise from September's 2.38, and the highest since June 2023. Needless to say, it was well above the recent average.

Unprecedented Internal Figures

The internals of the auction were truly astonishing. Indirects skyrocketed from 68.7% to an unprecedented 80.5%, the highest on record. This suggests that foreign central banks and various other entities were eager to acquire more paper. With less than 20% remaining for other participants, Directs only took down 7.6%, the lowest since 2018. This left Dealers holding 12.2% of the final allocation, the lowest since July 2023.

Implications of the Record-Breaking Auction

This is what the strongest 30-year auction, at least in recent history, looks like. Not surprisingly, yields rose to session highs just before the auction result. However, yields have since slid by about 3bps as the market was evidently surprised by the high demand for long-dated paper. This suggests that while the Federal Reserve may slow down its easing cadence for a few months, it will eventually have to be much more aggressive in monetizing US debt. This is especially true considering the promises made by both Kamala Harris and Donald Trump to pump tens of trillions more debt in the coming years.

Bottom Line

The record-breaking 30-year auction this week has certainly made waves in the financial world. The unprecedented high yield and bid to cover ratio, coupled with the soaring indirects, paints a picture of a market hungry for long-dated paper. As the Federal Reserve grapples with the potential need to monetize US debt more aggressively, one can't help but wonder what the future holds for the US economy. What are your thoughts on this record-breaking auction? Share this article with your friends and let us know your thoughts! Don't forget to sign up for the Daily Briefing, available every day at 6pm.