(Recasts throughout, adds quotes)
NEW YORK Aug 11 The U.S. Treasury suffered its
worst long bond auction in 2-1/2 years on Thursday as foreign
investors shunned it in the wake of a damaging budget battle
and downgrade to the credit standing of the United States.
The sale was the first 30-year bond offering since Standard
& Poor's stripped the United States of its AAA credit rating.
It also took a hit from extreme levels of volatility sweeping
through global financial markets.
Worries about the stability of French banks and a slowing
U.S. economy have driven markets to extremes and made
safe-haven Treasuries expensive despite S&P's downgrade.
Some decline in that fear on Thursday, however temporary it
may be, appeared to hurt investor appetite for safe-haven debt.
Also, the Federal Reserve's decision earlier this week to keep
short-term rates near zero for two more years may have affected
bond pricing across different maturities.
"Horrible auction," said William O'Donnell, head of
interest-rate strategy at RBS Securities in Stamford,
Connecticut. "It may be a while before the markets get 30-years
priced on the curve appropriate to the Fed's actions earlier
Oddly, the 30-year sale followed a robust reception for an
auction of 10-year debt on Wednesday.
Investors submitted bids worth 2.08 times the amount of
30-year debt on offer, the lowest since February 2009.
A measure of foreign demand -- the indirect bidder category
-- accounted for just 12 percent of the sale, the lowest since
In the open market, the 30-year bond US30YT=RR lost 5
points in price immediately after the auction results were
(Reporting by Burton Frierson and Richard Leong; Editing by