Is a storm brewing in U.S. Treasuries? The 30-year Treasury auction was dismal, with each of this week's three auctions performing worse than the last

After experiencing two poorly performed U.S. Treasury auctions this week (including the weak 3-year Treasury on Tuesday and the very poor 10-year Treasury yesterday), the 30-year Treasury auction completed by the U.S. Treasury on Thursday was again disappointing, and this auction may have been the worst of the three. On Thursday local time, the U.S. Treasury auctioned $25 billion in 30-year bonds, and the auction results were bleak. The winning bid rate for this 30-year Treasury auction was 4.813%, although lower than July's 4.889%, the winning rate was 2.1 basis points higher than the pre-issue yield of 4.792%, reflecting a tail spread indicative of weak demand, and it was the largest tail spread since August of last year. The bid-to-cover ratio for this auction was 2.27, down from last month's 2.38, marking the lowest level since November 2023 and significantly below the average of the last six auctions. The market is most concerned about the internal data of the auction: The indirect bid ratio fell from 59.8% in July to 59.5%, the lowest level since May, which was an extreme value, and this also marked the second lowest since 2021. Indirect bidders are typically institutions such as foreign central banks participating through primary dealers or brokers, serving as an indicator of overseas demand. The direct bid ratio dropped to 23.03%, down from last month's 27.4%, and also below the average of 24.2% for the six auctions; direct bidders include hedge funds, pension funds, mutual funds, insurance companies, banks, government agencies, and individuals, serving as an indicator of domestic demand in the U.S. As the "backstop" for all unsold supply, primary dealers received an allocation ratio of 17.46%, the highest level since August 2024, highlighting weak actual demand. Financial blog Zerohedge commented: The last interest-bearing U.S. Treasury auction of the week was also the worst, and the bond market is clearly aware of this, leading to a surge in the 10-year Treasury yield to an intraday high of about 4.25%. More concerning is that today's auction results suggest that once Powell eventually starts cutting rates, the market will immediately reprice inflation expectations, and long-end yields will rise sharply, resulting in a surprising steepening trend.