30-Year Treasury Auction at All-Time Record Low Yield

Investing

Published: January 14, 2015 1:35 pm

Earlier on Wednesday, we discussed how the interest rate hike cycle is looking as though it is being pushed farther and farther out. The Federal Reserve likely will just have to be patient. Still, some market participants and pundits want the Fed to begin hiking rates sooner rather than later. But what does a Treasury bond auction at a record low for the 30-year Treasury tell you?

Despite low participation, the 30-year Treasury bond with a 3.00% coupon just went off at a yield of 2.43% after a substantial premium pricing — the lowest yield we have ever seen. The on-the-run yield was just above 2.41% shortly ahead of the auction.

The pricing was obviously not at par, based on the yield being so much lower than the coupon, but at $112.041418. As a reminder, yields and bond prices are inversely correlated. Some 29.89% of bids are coming in at the high.
Weak economic data in the United States, weak data overseas, lower energy prices and international growth markets in virtual recessions are all adding up to not a great outlook. What is amazing is that equities have not pulled back even more than they have from their recent highs.

We recently showed how the Dow Jones Industrial Average would rise to a high of 19,142 during 2015. January sell-offs do not change those annual outlooks, but longer or prolonged sell-offs sure will change them.

Is the market bracing for another recession watch? The World Bank lowered its global growth forecasts this week, but not to levels anywhere close to a formal recession. Economies like China, Brazil, Russia and others have to have above-normal growth for those economies not to feel like they are in recession.

Interest rates have been supposed to rise almost every year since 2011, yet here we have a 30-year bond auction go off at a record low yield. The DJIA was down 300 points or so under 17,320 — go figure!

ALSO READ: Merrill Lynch 2015 Outlook for Stocks, Bonds, Energy, Income, Themes and More

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¹https://www.fdic.gov/national-rates-and-rate-caps