Preview: US to sell USD 22bln of 30-year bonds at 18:00BST/13:00EDT

US 30YR AUCTION RECENT HISTORY:

• High Yield: (prev. 5.046%, six-auction avg. 4.835%)
• Tail: (prev. 0.5bps, six-auction avg. -0.2bps)
• Bid-to-Cover: (prev. 2.30x, six-auction avg. 2.41x)
• Dealers: (prev. 11.7%, six-auction avg. 10.7%)
• Directs: (prev. 21.7%, six-auction avg. 22.6%)
• Indirects: (prev. 66.6%, six-auction avg. 66.7%)

Primer:

The US Treasury will sell USD 22bln of 30-year bonds with yields currently trading around 5.00%, slightly below the prior auction's 5.046% high yield but still well above the six-auction average of 4.835%. While investors are being offered a marginally lower yield than at the May auction, current levels remain historically attractive and continue to offer one of the highest outright yields since July 2025.

The auction follows a mixed inflation backdrop this week. CPI showed a softer-than-expected core monthly reading, while PPI was mixed with softer core measures but firm headline and supercore inflation. Taken together, the reports are unlikely to materially alter Fed expectations, but they do remove a significant source of event risk ahead of today's sale. With both CPI and PPI now behind the market, investors have greater clarity regarding the inflation backdrop than they did ahead of recent auctions.

The labour market also remains resilient following last week's stronger-than-expected nonfarm payrolls report. While inflation remains above target, the combination of stable employment and elevated yields may continue to appeal to duration-sensitive investors looking to lock in long-term income at attractive levels.

The geopolitical backdrop remains highly relevant. There are mixed reports regarding negotiations, with US officials suggesting talks remain active, while Iranian officials have cast doubt on whether meaningful negotiations are currently taking place. Meanwhile, military exchanges have continued this week, keeping energy markets volatile and inflation expectations sensitive to developments. Any sustained rise in oil prices would likely weigh more heavily on the long end of the curve given its sensitivity to long-term inflation expectations and term premium.

The prior 30-year auction was soft, tailing by 0.5bps with a below-average bid-to-cover ratio of 2.30x. Direct demand was slightly below average while indirect participation was broadly in line with recent norms, leaving dealers with a modestly above-average allocation. Since then, demand has improved through this week's 10-year auction, which stopped through and saw exceptionally strong indirect participation, suggesting foreign demand remains healthy at current yield levels. The improvement from this week's softer 3-year auction to the strong 10-year offering could also bode well for the 30-year if investors are becoming more comfortable extending duration, particularly with both CPI and PPI now in the rear-view mirror.

However, volatility remains somewhat elevated, with the MOVE index currently around 74 versus roughly 70 at the time of the prior offering. While the increase is modest, it may temper demand at the margin, particularly among duration-sensitive accounts.

Overall, the auction benefits from elevated outright yields, a resilient labour market, and the removal of CPI and PPI uncertainty. However, slightly higher volatility, ongoing geopolitical risks, and the fact that yields remain slightly below the prior auction's level could limit the extent of any improvement. The strong 10-year auction earlier this week provides an encouraging signal, but today's sale will offer a clearer indication of investor appetite for duration at the long end of the curve.