Treasury to Sell 30-Year Bonds at Record Low Yield

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02/13/2020 | 06:36 pm

By Sam Goldfarb

The U.S. Treasury Department is poised on Thursday to sell 30-year bonds at a record low yield, highlighting investors' demand for longer-term debt and its benefits to the government.

Following up on a $27 billion auction of 10-year notes on Wednesday, the Treasury is set to sell $19 billion of 30-year bonds at 1 p.m. Eastern Time.

In recent trading, the yield on the existing benchmark 30-year U.S. Treasury bond was 2.075%, according to Tradeweb.

That was below the 2.170% yield that marked an all-time low for a 30-year bond auction last October, according to data from BMO Capital Markets. It was also down from 2.091% Wednesday, reflecting increased demand for safer assets after Chinese officials changed the way they counted coronavirus infections -- leading to a big jump in the number of confirmed cases in the country's Hubei province.

Yields fall when bond prices rise.

Fear that the coronavirus will slow global growth has helped push down Treasury yields in recent weeks. But that is just one reason why the 30-year bond is poised to set a record, analysts said.

Others include persistently soft inflation, which has limited one of the main threats to the value of longer-term Treasurys.

Investors have also grown more comfortable buying 30-year bonds because they view them as good insurance against losses in riskier assets like stocks, said Jon Hill, a U.S. interest-rates strategist at BMO.

Thanks to their longer duration, prices of 30-year bonds increase more for every one-percentage point decline in yields than those of shorter-term bonds. That means on days like Thursday, when investors are selling stocks and buying bonds, the holders of 30-year bonds are particularly well-hedged, Mr. Hill said.

Thursday's level doesn't represent the lowest point that the 30-year bond yield has ever reached. Last August, it settled as low as 1.941%, but yields rose again before the next 30-year auction in September.

In recent years, low Treasury yields have, at times, caused U.S. officials to flirt with issuing bonds with maturities beyond 30 years to lock in low interest rates for a longer period.

Treasury Secretary Steven Mnuchin said last September that the Treasury Department was "very seriously considering" issuing a 50-year bond. The department, however, dropped that idea due to a lack of interest from bond dealers. Instead, it recently announced plans to issue 20-year bonds, which haven't been issued regularly since the 1980s.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 1.617%, compared with 1.629% Wednesday.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

 

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