30-Year Treasury Yields 5.308%: What to Expect on October 8

Over the past few months, yield at 30-Year Bond Auction climbed steadily.

• May sale was the first 30-year auction to clear above 5% since 2007.
• By August, a $25 billion sale cleared at 5.216%, the highest since 2001.
• The most recent one, in September, came in at 5.308%, up from 5.216% the month before.

Each recent auction has cost the government more than the last.

The next sale is this Thursday, October 8. Treasury is selling $22 billion of 30-year bonds.

Market has already moved higher since September sale. The 30-year yield was 5.61% on October 1, up from 5.49% on September 25. Auction yields follow the market, so unless something changes quickly, Thursday result will probably come above 5.308%.

What to watch on Thursday

The yield will probably be high, but the yield alone doesn't tell you much. What matters more is whether investors were eager to buy or whether the government had to pay extra to find buyers.

1. How the result compares with the pre-auction price. In the minutes before the sale, these bonds are already trading in the market at a certain yield. That is the market's best guess at what the auction will cost. Say the bond is trading at 5.60% just before the sale.

If the auction ends at 5.63%, the government had to pay more than expected, which means buyers held back. Traders call this a "tail." If the auction ends at 5.57%, buyers were sharper than expected and the government paid less.

2. The bid to cover ratio. This shows how much demand there was. A ratio of 2.4 means investors placed $2.40 of bids for every $1 of bonds on offer. The higher the ratio, the more competition there was to buy. Recent auctions have been around 2.4, so a noticeably lower number would suggest weak interest.

How to read the two together

A high yield is not bad news if demand is still strong.

The yield tells us how expensive it is for the government to borrow. The demand tells us whether the market is calm about it or struggling.

Borrowing is already expensive, with yields at their highest in nearly two decades. That is bad for the government and for anyone whose loans follow Treasury rates - mortgage borrowers. But if lots of investors still show up to buy, the sale goes smoothly. The market has just settled on a higher price, and the system is working normally.

The worse case is when yields are high and few buyers show up. Then the government is paying more and still struggling to sell. That means investors are getting tired of holding this much government debt, and it can push yields even higher.