| Fundamental Market Demand Rises for 30-Year Treasury Bonds | |
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Why Did Treasury Yields Fall as China Devalued Its Currency? (Continued from Prior Part) 30-year Treasury bonds
The monthly auction for 30-year Treasury bonds, or T-bonds, was held on August 13 for $16 billion. It was $3 billion higher than the previous month.
Key takeaways
- The auction was held on August 13.
- The coupon rate was set at 2.875%. It was 12.5 basis points lower than the previous month.
- The high yield fell to 2.88% in August from 3.084% in July.
- The bid-to-cover ratio fell by 3% and came in at 2.26x in the August auction. So far in 2015, the ratio has been 2.28x lower than the 2014 average of 2.47x.
Yield analysis
The yield on 30-year T-bonds rose by 2 basis points in the secondary market from the previous day to 2.86% on August 13.
Fundamental demand rose marginally
Market demand rose to 61.80% of the accepted bids—compared to 59.20% in July’s auction. Indirect bids rose slightly and came in at 51.90% in August. Indirect bids are bids from foreign central banks. They reflect the overseas demand for T-bonds.
Direct bids rose to 9.90% in August from 8.10% in July. The share of direct bids includes bids from domestic money managers like Wells Fargo (WFC) and Invesco (IVZ).
Primary dealers’ share fell marginally due to a slight improvement in accepted bids from direct and indirect bidders. The share of primary dealers fell from 40.80% to 38.20% month-over-month. Primary dealers act as market makers. They include companies like Goldman Sachs (GS) and Citigroup (C). They’re obliged to take up auctions’ excess supply.
Investment impact
Due to rise in long-term yields in the secondary market, long-term mutual funds’ returns were negatively impacted.
The Wasatch-Hoisington US Treasury (WHOSX) invests almost 100% of its assets in Treasury securities with a maturity greater than ten years. The fund’s weekly return fell by -0.43%.
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