Funds scoop up U.S. 30-year bonds at auction

NEW YORK Fri Nov 23, 2012 4:08pm EST

NEW YORK Nov 23 (Reuters) - Investment funds bought the bulk of the $16 billion U.S. 30-year Treasury bonds sold in early November during a safe haven buying spree that pushed long-dated yields to two-month lows, government data released on Friday showed.

The U.S. Treasury Department's allotment data indicated investment funds bought $7.21 billion at the 30-year bond auction on Nov. 8, two days after the U.S. presidential election when Barack Obama won a second term.

This was double the amount this group of investors bought at the 30-year bond sale held in October.

November's 30-year bond sale was a part of the government's quarterly refunding, which involved the combined sales of $72 billion in federal debt.

Investment funds, however, purchased fewer three-year and 10-year notes at the refunding than they bought in October, according to the latest allotment data.

Fund managers and traders have been fearful that Obama and a divided Congress will fail to reach a deal to avoid the "fiscal cliff," which is a series of automatic tax rises and spending cuts worth $600 billion that phase in next year. Economist believe that such a fiscal contraction would push the United States into a recession.

In the immediate aftermath of the election, traders and investors dumped stocks and other risky assets and piled into the safety of cash and Treasuries.

A week ago, the yield on this 30-year Treasury bond issue touched 2.695 percent, the lowest since Sept. 5. Its yield ended on Friday at 2.829 percent.

While investment funds bought 45 percent of the latest 30-year bond supply, other major investor classes purchased fewer of the bonds than in October, the data showed.

For example, foreign investors and central banks bought $730 million of the latest 30-year issue, down from $1.09 billion in October.

Wall Street dealers bought $7.94 billion of the issue that will mature in November 2042, down from $8.64 billion at the October auction.