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

30-year

• Tail: (prev. 1.2bps, six-auction average -0.2bps)
• High Yield: (prev. 5.020%, six-auction average 4.898%)
• B/C: (prev. 2.33x, six-auction average 2.43x)
• Dealer: (prev. 14.7%, six-auction average 10.9%)
• Direct: (prev. 25.3%, six-auction average 24.0%)
• Indirect: (prev. 60.0%, six-auction average 65.1%)

Primer

The 30-year yield currently trades around 5.09%, above both the 5.020% high yield seen at the June auction and the six-auction average of 4.898%. The auction also follows two well-received nominal coupon auctions this week (3- and 10-year). While the 30-year attracts a different investor base to the front end and benchmark 10-year, today's sale will provide another test of whether the strong demand seen earlier this week extends to the long end of the curve.

The previous 30-year auction was soft, tailing by 1.2bps, with indirect demand falling below average and dealers left with an above-average allocation. By contrast, both this week's 3- and 10-year auctions saw exceptionally strong indirect demand. If some foreign investors were underweight after June's weak long bond auction, today's higher outright yield could encourage them back into the market.

The macro backdrop has also evolved since the June auction. The FOMC delivered a hawkish shift under Chair Warsh, removing forward guidance and reinforcing its commitment to price stability. While the subsequent June payrolls report prompted markets to pare some rate hike expectations, Treasury yields have moved back higher in recent sessions as geopolitical tensions have re-escalated. The ceasefire between the US and Iran has effectively broken down following attacks in the Strait of Hormuz, prompting the US to revoke Iran's licence to produce, deliver and sell energy products, helping lift oil prices and reignite inflation concerns.

The MOVE Index, a measure of Treasury market volatility, has also picked up alongside the geopolitical tensions. After falling to around 65 last week, it has risen back to around 72, although it remains slightly below the 74 level seen at the time of the previous 30-year auction.

Overall, the combination of elevated outright yields and the strong demand seen at this week's 3- and 10-year auctions provides a constructive backdrop for today's sale. However, the recent pickup in geopolitical tensions, firmer oil prices and higher rate volatility could temper demand at the margin. While investors have shown a willingness to buy Treasuries at current yield levels, today's auction will provide another important test of appetite for long-duration exposure.