This past Thursday the Treasury Department auctioned off $15 billion in 30-year bonds at a high output of two and a half percent. The bid-to-cover ratio, a sign of demand, came in at 2.09, in contrast to a recent average of 2.35. Direct bidders, which involves domestic revenue managers purchased 10.3 percent. Indirect bidders, which incorporates major central financial institutes, were awarded close to 60 percent. U.S. Treasury bond yields dropped to levels not seen since 2012, in some situations, concern over global expansion and the effectiveness of central bank policy ignited a major demand for safe-haven assets and global equity markets to be sold off. As stocks sold off Thursday morning, 30-year bond futures hit their highest point in 4 decades.
“The U.S. Long Bond future has broken out … as ‘risk-free’ interest rates plummet,” Bespoke documented in a research note tracking markets back to 1977.
The yield on the 10-year Treasury note fell below 1.55 percent to its lowest level since September 2012. The 30-year bond yield hit its lowest point in a year below 2.4 percent but increased after the auction to 2.49 percent. The yield spread between 10-year and 2-year notes narrowed to its tightest level since November 2007, mirroring an outlook for weak economic growth and low inflation. The three major U.S. stock mediums decreased more than 1 percent each on Thursday. Prices on fed fund futures used to guesstimate future U.S. policy rates by the Federal Reserve, which surged across the board as investors continue to cut back expectations that the Fed will be able to engineer another rate hike anytime in the near future. Fed fund futures contracts don’t believe the Federal Reserve increasing rates until at least February 2018 and, in fact, are pricing in a small likelihood of a price break.