By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -Investors are cautiously approaching the U.S. Treasury’s sale of $22 billion in 30-year bonds on Thursday after an underwhelming auction last month that had some of the weakest demand metrics of 2025, though some believe it could be different this time.
The auction size is $3 billion smaller than that in August and could be easier to absorb, which could be an advantage, analysts said.
However, the 30-year bond sale comes amid global disdain for the long end of the yield curve as worries about fiscal deficits, an age-old issue, continue to grip sovereign debt markets.
The U.S. Treasury market – widely regarded as the cornerstone of the global financial system – has come under pressure amid mounting concerns over the high national debt, the inflationary impact of tariffs and growing unease about the Federal Reserve’s independence.
“The long end remains a singled-out segment, particularly the 30-year, where any problem that arises, investors’ knee-jerk reaction has been to sell it,” said Guneet Dhingra, head of U.S. rates strategy at BNP Paribas, in New York.
“That dynamic, plus the fact that global long-end bond markets from Japan to the UK are flashing amber or red, is going to keep the long end of the U.S. curve under pressure.”
In last month’s auction, the bid-to-cover ratio, a measure of investor demand, was 2.27, the lowest level since November 2023.
End-user demand, which combines both indirect and direct bids, slumped to 82.5%, the worst since August 2024. Direct bidders in Treasury auctions are firms, such as pension funds and hedge funds, who submit bids for their own investment accounts directly to the U.S. Treasury.
Indirect bidders, on the other hand, are investors who submit competitive bids through an intermediary, such as a primary dealer or a financial institution. These bidders also include foreign investors.
That said, August is typically “seasonally negative” for 30-year supply, said Vail Hartman, U.S. rates strategist at BMO Capital. Since 2009, he noted that just one 30-year bond auction in August managed to go smoothly and that was in 2014.
Overall, long-dated U.S. government debt continued to face headwinds, with the five-year/30-year yield curve steepening to 126 basis points last Friday — its widest level in more than four years. The move signaled persistent selling pressure on 30-year bonds, driving yields higher as investors reassessed the outlook for long-term rates.
The curve has flattened a little bit this week as investors reduced their steepening positions ahead of Thursday’s 30-year auction.
“We’ll be curious to see the reception to longer-dated supply at a moment when duration has proved to be a continuous underperformer on the curve,” wrote BMO in a research note.
DIFFERENT THIS TIME?
But perhaps it could be different this time around, analysts said, especially as the Fed has shifted to a more dovish tone since the central bank gathering in Jackson Hole, Wyoming, on August 22.
“With two very weak U.S. jobs reports, the market is much more confident about the slower growth sentiment,” said Will Compernolle, macro strategist at FHN Financial in Chicago. “So the rally (in Treasuries) that we’ve seen in the 30-year since last Wednesday is on much firmer ground.”
The 30-year yield has declined by 28 basis points since last Wednesday, when it briefly topped 5% for the first time since mid July, and was last little changed at 4.719%/
The selloff that lifted the long-bond yield to 5% immediately drew buyers.
The long bond sale could also see support following a stellar $58 billion U.S. three-year note auction on Tuesday while investors will watch demand at the Treasury’s sale of $39 billion in benchmark 10-year notes later on Wednesday.
The well-subscribed three-year note sale offset the disappointing results from August. It had good support from indirect bids which took 74.2% of supply, up from 54.0% in the previous auction.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alexandra Hudson)
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