30-Year Treasury Bills Sell Well at Finale of Auction

Heavy buying by institutional investors helped bring the final and most sensitive stage of the government’s $30.5-billion Treasury auction to a successful conclusion Thursday at lower-than-expected interest rates.

The Treasury Department auctioned off $10 billion in 30-year bonds at an average yield of 8.84%--0.04 percentage point less than the average yield on 10-year Treasury bonds auctioned off the day before.

The relatively low yield and warm reception to the sale was a surprise to many bond traders, who had feared that there would be slack demand for the long-term securities. Small investors and the Japanese, who bought a substantial portion of the three- and 10-year Treasury notes sold earlier in the week, were not big participants in Thursday’s auction.

Smaller investors bought a full 23% of the three-year notes on Tuesday but less than 5% of Thursday’s issue. No precise figures are available for Japanese purchases, but bond traders estimated that they bought about 20% of the offering, compared to 25% to 30% of the shorter-term securities.

Big institutional investors that apparently had been sitting on substantial cash reserves stepped in with heavy purchases during and after the auction, said Anthony Vignola, managing director of Kidder, Peabody & Co. in New York.

“We saw tremendous buying by institutions,” added Alan McClymonds, co-manager of government trading at First Boston Corp. in New York.

Hours after the auction, in fact, buying was so strong in the secondary market that prices were bid up and yields fell to 8.81%, said Michael Ingraham, senior vice president and manager of the investment division at Mitsui Manufacturers Bank in Los Angeles.

That may seem like a tiny change, but these bonds typically sell in large blocks. The 0.03 percentage point difference amounted to a $3,050 profit for someone buying $1 million in bonds at the average auction price and selling only a few hours later, Ingraham added.

The success of the auction helped bolster the government securities market, which had been languishing for three weeks, bond traders said.

“There was a lot of fear that the market couldn’t handle this much new debt,” McClymonds said. But it is stronger than it usually is after a quarterly Treasury auction--a bullish signal, he said.

“If trading keeps up like this tomorrow, I think we are going to see this market take off,” McClymonds said.