(Adds auction details, analyst comment)
NEW YORK, Feb 19 (Reuters) - The U.S. Treasury Department on Thursday sold $9 billion of 30-year Treasury Inflation-Protected Securities to heavy investor demand, resulting in the lowest yield on this debt maturity in two years.
The latest 30-year TIPS supply fetched a yield of 0.842 percent, down from 0.985 percent set at a prior auction held in October. It was the lowest yield at a 30-year TIPS auction since 0.0638 percent in February 2013.
The unexpected strong demand for the longest TIPS maturity bolstered the sector, pushing long-dated prices and inflation breakeven rates to session highs.
“This is the most aggressively bid new issue 30-year TIPS auction since February 2011,” Thomas Simons, money market strategist at Jefferies & Co. wrote in a note about the auction.
Fund managers, foreign central banks and other indirect bidders bought 69.04 percent of the latest 30-year TIPS supply. This was their largest share at a 30-year TIPS auction since data were available going back to February 2010, Treasury data showed.
Small bond dealers, large money firms and other direct bidders purchased 3.96 percent of the latest TIPS issue, their smallest share since June 2013.
Primary dealers or the 22 top Wall Street firms that do business directly with the Federal Reserve bought 27.0 percent of the TIPS supply. This was their smallest share going back to February 2010.
On the open market, the most actively traded 30-year TIPS issue due Feb. 2044 was little changed on the day near its session high of 114-13/32 with a yield of 0.815 percent.
The 30-year inflation breakeven rate, or the yield difference between 30-year TIPS and regular 30-year Treasury bond, was last at 1.905 percent, just short of its session high which was also its highest level since early January, according to Tradeweb. (Reporting by Richard Leong; Editing by James Dalgleish and Chizu Nomiyama)