(Bloomberg) — A day after investors proved they're still interested in buying Treasuries amid tumbling yields, a sale of 30-year securities Thursday will give them another opportunity to snap up bonds.
The nation's Treasury on Wednesday sold $23 billion of 10-year notes at their lowest yield in four years. Demand from a group of buyers that includes foreign central banks and mutual funds was near record levels. A three-year note sale a day earlier also drew the strongest demand of 2016. The auction later on Thursday will offer $15 billion of bonds due in three decades.
In some ways, the demand flies in the face of warnings from investors such as Bill Gross and Jeffrey Gundlach that the bond market is in a bubble because of unprecedented monetary stimulus from the Bank of Japan to the Bank of England and the European Central Bank. Yet their policies, including bond purchases, are sending yield-seeking investors to the U.S., capping interest rates at a time when almost $9 trillion of sovereign debt worldwide yields less than zero.
"The combination of BOE, BOJ easing and possible expansion from the ECB is crowding out private investors, as these central banks are vacuuming the bond markets," said Jens Peter Sorensen, chief analyst at Danske Bank A/S in Copenhagen. "Hence, investors are looking to buy alternatives where there is no quantitative easing distortion. It seems that the market does not believe that the Fed will hike despite the labor-market data," he said, referring to greater-than-expected jobs growth last week.
Benchmark 10-year note yields were little changed at 1.52% as of 11:58 a.m. in London, Bloomberg Bond Trader data show. The price of the 1.5% security due in August 2026 was 99 27/32. Ten-year yields reached a record low 1.318% on July 6. Treasuries opened for trading in London after being closed in Japan for a holiday.
Indirect bidders, a category that encompasses foreign central banks, returned in droves at Wednesday's auction, after last month purchasing the least since January 2015. They bought about 72%, compared with the past year's average of about 64%. Primary dealers, the bond firms obligated to bid at the government's sales, were left with 20%, compared with 38% in the previous sale.
The U.S. debt rally followed gains in the U.K., where the BOE has expanded quantitative easing. The U.K.'s central bank said it received sales offers for 4.71 times the debt it planned to buy at an operation Wednesday, in contrast to the previous day, when it failed to find enough sellers of longer-dated gilts.
Ten-year U.K. bond yields fell on Wednesday to 0.512%, an all-time low.
"There seems to be this downwards pull, particularly on longer-dated yields," Mike Amey, a portfolio manager at Pimco in London, said Wednesday in an interview on Bloomberg Television. The firm's Total Return Fund increased its stake in U.S. government debt to a 25-month high in July.
"From a 50,000-foot view, you'd say they are bubbling over in the sense that rates are at levels that are not fair-market," said Tom Tucci, head of Treasuries trading in New York at CIBC World Markets. "But if central banks are continually taking supply out of the market, it's very difficult for those rates to move up appreciably."