Successful 30-Year Treasury Bond Auction Helps Push Prices Higher

Treasury bond prices rallied Thursday after a strong auction for 30-year bonds, one of the best showings in four years.

The auction’s success was attributed to an attractive rate and the latest Federal Reserve moves to boost the faltering economy.

The auction was powered by near-record demand from individual investors for the 30-year issue, which offered an average yield of 8%. Thursday’s action was in stark contrast to the first two parts of this week’s note and bond auction.

The three-year note and 10-year note auctions on Tuesday and Wednesday both resulted in higher-than-expected average yields, which meant the Treasury had to pay more to raise the money.

The benchmark 30-year bond in the secondary market closed up 15/16 point, or $9.38 per $1,000 in face amount. Its yield, which moves in the opposite direction from price, fell to 7.92% from 8% late Wednesday.

The market languished until the early afternoon auction, then rallied strongly after the Treasury reported the results.

The Treasury auctioned $12.01 billion of 30-year bonds. The average yield of 8% is down from 8.17% at the last auction for such bonds Aug. 8. It was the lowest rate since 30-year bonds averaged 7.98% on Feb. 7.

One measure of the auction’s success is the bid-to-cover ratio, the difference between total bids and those awarded to investors. The ratio was a vigorous 2.56 to 1, the highest participation since November, 1987, according to Dean Witter Reynolds Inc.

Joseph Plocek, senior vice president of McCarthy, Cristanti & Maffei Inc., said the auction had “excellent results” compared to auctions of three-year and 10-year issues, “which were disasters.”

The three-year note auction, held Tuesday, was marred by confusion over new Treasury auction rules put in place after the Salomon Bros. bond cheating scandal. Turnout for the 10-year note auction, held Wednesday, was poor because the Fed cut interest rates the same day, an unusual move that confused traders, analysts said.

Dan Seto, economist for Nikko Securities Co. International, said demand was strong among individual investors for the 30-year bonds, which offered an attractive yield of 8%. Non-competitive bids totaled $937 million, four times greater than the typical level, he said.

Late in the session, the Federal Reserve released its weekly money supply statistics, which showed two broad measures of the nation’s money supply fell in the last week in October.

In the secondary market for Treasury bonds, short-term maturities were unchanged to 1/32 point higher, intermediate maturities were up between 9/32 point and 5/8 point, and long-term issues were up between 13/16 point and 1 1/32 point, the Telerate Inc. financial information service reported.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

The federal funds rate, the interest on overnight loans between banks, was quoted at 4.688%, up from 4.625% late Wednesday.