By Richard Leong
NEW YORK (Reuters) - The U.S. 30-year government bond regained some luster on Tuesday as yield-hungry investors who had been skittish about owning longer-dated debt, loaded up on $12 billion of this maturity at an auction.
The renewed appetite for the longest Treasury debt maturity came a day after lackluster demand for $24 billion of three-year notes and $20 billion of 10-year debt on Monday.
Since Donald Trump's surprise U.S. presidential win on Nov. 8, longer-dated bonds including U.S. 30-year Treasuries have fallen out of favor on bets of faster inflation and a surge in federal borrowing under a Trump administration.
Longer-dated Treasury yields have risen more than shorter-dated yields in the past month, steepening the U.S. yield curve even on growing certainty that the Federal Reserve would increase short-term interest rates by a quarter point at its policy meeting on Tuesday and Wednesday.
The spread between 30-year and two-year Treasury yields grew to 205 basis points on Monday, which was its widest in about a year, according to Tradeweb.
"Since the election, market sentiment has strongly favored a steeper curve. However the move is not going to progress in a straight line, and today was evidence to that effect," Jefferies & Co's money market strategist Tom Simons wrote in a research note on the 30-year auction.
The U.S. Treasury Department sold the latest 30-year bond issue at a yield of 3.152 percent, the highest for this maturity at an auction since September 2014, Treasury data showed.
The ratio of bids to the amount offered was 2.39, up from 2.11 at the prior 30-year bond sale in November.
The combined purchase from direct and indirect bidders, a proxy of investors demand, accounted for about 73 percent of the 30-year supply, which was their biggest share since July.
Conversely, primary dealers or the 23 top Wall Street firms who do business directly with the Fed, bought the rest which was their smallest share at a 30-year auction since July.
"Buyside investors were willing to shoulder the load from the dealers, who had limited available balance sheet ahead of year-end," Simons said.