Interest Rate on 30-Year Treasuries Falls Below 8%

The interest rate on 30-year Treasury bonds sliced through the psychologically important 8% barrier Thursday as the government sold $11 billion of new bonds at an average yield of 7.98%.

But rates firmed shortly after the auction results were announced at midday as dealers began placing the bonds they had purchased, pushing prices down and yields up. The new bonds closed the day at 8.03%.

Coming on the heels of strong sales of 3- and 10-year notes earlier this week, Thursday’s auction--whose prospects had been the most uncertain--meant that the Treasury’s record $34.5-billion quarterly refunding was an unequivocal success.

“This is great news,” said Melissa Cohn, chairman of Manhattan Mortgage Co., a New York mortgage broker. “Eight percent seems to be a benchmark figure. When the long bond goes below 8%, banks breathe much easier and interest rates can really tumble.”

Thursday’s sale was “our third bullet in a row,” added Michael A. Rosen, a vice president of First Interstate Bank in Los Angeles. A bullet is industry parlance for a sale in which demand exceeds supply at a given rate.

“This reflects the very bullish sentiment on the street for the direction of interest rates,” Rosen added.

Buying in Thursday’s auction was described by dealers as “broad-based,” with strong domestic and overseas demand. But retail investors shied away from the sale, buying only about $223 million of the issue through so-called non-competitive tenders.

Lawrence Leuzzi, managing director of S. G. Warburg & Co., said foreign demand was dominated by the Far East and, to a lesser extent, the Middle East.

“Foreign investors have two ways to win,” said Leuzzi, noting that the dollar has hit record lows in foreign exchange markets. “They can get a rally in the dollar and a rally in the bonds.”

According to early indications, Japan’s “big four” investment firms--Nomura, Daiwa, Nikko and Yamaichi--accounted for about 25% of the buying, said George Gianaris, sales manager at Daiwa.

That’s about in line with what the Japanese had been buying last year.