NEW YORK Nov 8 Prices for U.S. Treasuries jumped on Thursday after a strong sale of 30-year debt underscored demand on the so-called fiscal cliff and continuing worries in Europe.
In its final refunding auction of the week, the U.S. Treasury sold $16 billion of 30-year bonds at a high yield of 2.82 percent.
"The bond auction came strongly through, with impressive stats across the board," Nomura analysts wrote in a note to clients.
At 2.77, the bid-to-cover ratio was the highest since December, with indirect bidders at the highest since April 2011.
"The fact that this demand was led by indirects ... leads us to believe that foreign accounts have finally started buying the long end in preparation for the fiscal cliff and as a hedge for continued euro zone worries," they wrote.
"Alternately this could reflect fast-money asset allocation type flows, similar to late-2011," they added, grading the auction "A".
U.S. 30-year bonds turned around losses to jump 1-4/32 after the debt sale to yield 2.774 percent, from 2.829 percent on Wednesday.
Prices for 10-year notes also pared losses to gain modestly, up 2/32 to yield 1.637 percent, compared to 1.644 percent on Wednesday.
The Fed's late morning purchase of $4.893 billion in coupons with maturities ranging from Nov. 15, 2020 to Aug. 15, 2022 was also supportive for Treasuries prices.
The Federal Reserve is currently buying about 92 percent of new issuance in the long end in its "Operation Twist" monetary stimulus program, said Cantor Fitzgerald analyst Justin Lederer in New York.
That program is due to end next month, but many market participants believe the Fed will announce more Treasury purchases at the December meeting of the Federal Open Market Committee, the Fed's monetary policy-making arm.
"The 30-year, like every other sector of the curve, has been stuck in an extremely tight range since mid-September," Lederer noted, its yield moving between 2.77 and 3.02 percent.
"We do not expect this range to break significantly in the near term," he said.
President Barack Obama's election victory on Tuesday supported bonds amid expectations for modest economic growth and accommodative, bond-friendly monetary policy.
But financial markets wonder if the White House and Congress will be able to mitigate the potential damage of a $600 billion package of automatic tax increases and spending cuts due to take effect early in the new year.
"A Democratic president and Republican House will need to come together to deal with the nation's fiscal health," said Zach Pandl, strategist at Columbia Management in Minneapolis.
"Having the election over is a relief, but investors still need to see a favorable resolution of the fiscal cliff before taking a more optimistic view on the U.S. economy," he said.
Concern about the European debt crisis also supported Treasuries. Greek lawmakers, by a very thin margin, approved an austerity package constructed to get international aid, but the coalition government still needs to pass the 2013 budget in a vote expected on Sunday.
Spain showed investors will buy its long-term debt on Thursday with a successful bond auction that completed its 2012 issuance program.
The European Central Bank kept rates on hold on Thursday and its president, Mario Draghi, sounded downbeat on the euro zone economy and said he was ready to start new purchases of bonds.