In contrast to the weak 10 yr auction yesterday, the 30 yr auction was solid as the yield was 4 bps below the when issued and the bid to cover of 2.94 was well above the 12 month avg of 2.61 and the best since March. Also, direct and indirect bidders took the most since April ’10. Bottom line, if you’re a pension fund or an insurance company and the Fed tells you that short term rates are staying near zero for another two years and that they will do all they can to keep long term interest rates low, you buy as many 30 yr bonds as you can, irrespective of the pathetic yields. It’s because you are left with little choice. It’s another example of how artificially manipulated interest rates leads to poor investment decisions and a misallocation of capital.
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