Treasury sees strong demand for 30-year auction

By Karen Brettell

June 12 (Reuters) - The U.S. Treasury Department saw strong interest in a $22 billion sale of 30-year bonds on Thursday, following concerns the U.S. government would struggle to find buyers for the longer-dated debt due to concerns about the long-term U.S. fiscal trajectory.

The yield on the 30-year bond US30YT=RR fell after the results were published, and was last down 6.1 basis points on the day at 4.848%.

"This is another auction where people really anticipated that there's going to be a buyers strike or something, but it's fine," said Will Compernolle, macro strategist at FHN Financial in Chicago.

The bonds sold at a high yield of 4.844%, more than one basis point below where the market put the yield at the close of bidding. Overall demand was 2.43 times the amount of debt on offer, in line with its recent average.

Dealers took a lower than usual share of the auction at 11.4%, indicating strong investor demand.

Indirect bidders, which include asset managers and some foreign investors, took a 65.2% share, just below their recent average. Direct bidders, which include China and some large asset managers, bought an above average 23.4% share of the bonds.

"It was a very, very solid auction," said Jan Nevruzi, U.S. rates strategist at TD Securities in New York. "The end user demand was pretty high, above recent averages, and it stopped through after a pretty substantial rally on the day."

FISCAL FEARS

Demand for the long bonds has fallen relative to shorter-dated debt in recent months as the U.S. faces a deteriorating fiscal outlook. A tax and spending bill currently being debated in Congress is expected to add trillions to the government's $36 trillion debt over the coming decade.

Concerns over the long-term fiscal picture have led investors to further increase the term premium, or extra return they require to hold longer-term Treasuries.

The 30-year bonds are now yielding 48 basis points above 10-year notes, compared to a gap of around 30 basis points in March. US10US30=TWEB

The yield spread over two-year notes US2US30=TWEB has also widened to 93 basis points, from around 60 basis points in early March.

Concerns about the fiscal outlook also increased last month after Moody's Investors Service stripped the U.S. of its top Aaa credit rating .

Thirty-year debt can be attractive to pension funds, insurance companies and other companies that match assets to longer-dated liabilities. Beyond this group, the maturity has sometimes struggled to find natural buyers.

Benchmark 10-year notes, by comparison, attract a wider variety of investors as a benchmark and much shorter maturity. The Treasury on Wednesday also saw strong demand for a $39 billion auction of 10-year notes.

Treasury Secretary Scott Bessent has expressed a desire to have lower 10-year Treasury yields as part of his strategy to boost economic growth.

TD's Nevruzi notes that some nervousness over Thursday's 30-year auction was likely a result of weak interest in a sale of 20-year bonds last month, which sparked a broader Treasury market selloff. Those bonds, however, have more idiosyncratic issues that impact their demand, he said.

NO SIGNS OF FOREIGN EXODUS

Traders are also concerned that U.S. President Donald Trump's erratic implementation of tariffs, along with expectations that the trade levies will dent growth and increase inflation, will scare foreign investors away from U.S. assets.

There have been no obvious signs so far that foreign investors are moving away from U.S. government debt.

"There's so much to this 'sell U.S.A. assets' narrative that feels intuitively convincing, but we're just not seeing it in the data," said Compernolle.

Foreign buyers also typically take only a small portion of 30-year auctions.

Treasury allotment data shows that foreign and international investors bought $3.01 billion in May's 30-year auction, up from $2.33 billion in April and $2.14 billion in March.