Blockbuster long bond auction

Wow, did buyers ever step up to the plate at today's auction of 30-year Treasury Bonds! The government sold $10 billion of long bonds at a yield of 4.609%. That was far below pre-auction talk of 4.662%. Indirect bidders (a category that includes foreign central banks) swallowed 42.9% of the paper, the most going back to February 2006.

The only weak spot was the bid-to-cover ratio, which came in at 2.4 (down from 2.69 in the last auction). That means $2.40 worth of bids were submitted for every $1 of debt being sold. But all in all, it was a strong auction. Long bond futures are surging on these results -- up 1 13/32 at last count. Yields on the benchmark 10-year Treasury Note were recently down 12 basis points to 3.94%.

What accounts for the strong demand? Perhaps the fall in commodity prices, which may be easing some of the market's inflation concerns. Also, big institutional and official accounts may be stepping back a bit from things like agency bonds and moving into Treasuries instead.