Investors gobble up 30-year bonds

Posted Jun 12th 2009 9:00AM by Connie Madon
Filed under: Good news, Market Matters

There was a growing concern that Thursday's 30-year bond auction would not do well. Well, we had a big surprise. Investors gobbled them like there was no tomorrow.

First of all, the bid-to-cover ratio (which measures the bids offered against the actual bonds for sale) was 2.68. The previous three auctions had an average bid to cover of 2.39.

The next important factor was the proportion of foreign buyers in the market. This gives an indication concerning the stability of the U.S. economy. If investors feel that the U.S. bonds are a solid investment, they will buy. It's as simple as that. Indirect bidders, which include foreign banks, snapped up 49% of the bonds offered, compared with only 26% in the previous three auctions. This was the highest showing for indirects since February of 2006 when it was 65.44%.

Added to the indirects, we had heavy buying from pension funds and insurers.

Last month there was growing skepticism about the ability of the U.S. government to maintain its AAA rating. That worry has now been eliminated by the solid results of Thursday's auction.

Do you believe that the results of the auction signal a growing confidence in the U.S. economy?

Tags: 30 year bonds, 30YearBonds, inthenews