U.S. 30-year bond auction gets dismal reception

A U.S. government auction of 30-year bonds met a dismal reception on Thursday, driving down bond and stock prices and raising fears the United States may face difficulty financing spending to stimulate the economy.

The $14 billion auction met below-average demand from investors, who forced the government to pay a higher yield. An extended trend of rising yields could force up longer-term interest rates throughout the economy. The higher interest rates also could push up costs for borrowing in areas like mortgages.

« It was a horrible auction, » said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle. « It just does not bode well for interest rates. It’s ugly, it’s very, very ugly, » Hurley added.

Worse yet, the high yield at the auction was about 10 basis points above market expectations, meaning the Treasury had to offer a much bigger yield to attract buyers. Such a big differential, is a sign of poor demand.