US $16 bln 30-yr auction draws soft demand

NEW YORK Feb 11 (Reuters) - The U.S. government sold $16 billion worth of 30-year bonds on Thursday in an auction that attracted soft demand but didn't live up to investors' worst fears.

The 30-year offering, the last of this week's $81 billion in bond sales, attracted bids worth 2.36 times the amount on offer, which was the weakest since November and below the average of 2.44 times in the 11 auctions over the last year.

Yields at auction were the highest in over two years and also above expectations based on trade in the when-issued market at the deadline.

This indicated investors were somewhat aggressive in pushing for lower prices and a yield premium to buy the bonds.

However, many had feared worse due to problems including a Greek fiscal crisis that has made it tough to price safe-haven assets and a snow storm that kept traders away from New York desks for at least part of the week.

"I would characterize the auction as mediocre at best or at worst," said Lou Brien, market strategist with DRW Trading Group in Chicago. "For the week, I would give them all a 'C' category, certainly not a disaster as the bid-to-covers remain pretty firm."

Demand from foreign central banks and large institutional investors was low, based on the indirect bidder category, which accounted for about 29 percent of the sale.

That was below the average of about 43 percent in the auctions since June, which has become a benchmark for comparisons because changes in calculations boosted that category.

Direct bidding came in very strong, however, assuaging concerns that might arise from signs of low foreign participation. Also, foreigners are generally not considered to be as active in auctions of longer dated Treasuries.

Financial markets are watching bond auctions closely given a burgeoning U.S. budget deficit brought on by a costly financial sector bailout and efforts to stimulate the economy.

While investors in May 2009 briefly appeared to question the longevity of the United States' prized AAA credit rating, those worries seem to have subsided, though some analysts say the jump in debt could yet come back to haunt the government.

(Additional Reporting by Chris Reese; Editing by Andrew Hay)