As the US Treasury prepares to auction off 30-year bonds next week, market participants are eagerly awaiting the outcome. In recent months, 30-year auctions have faced challenges, with tailing by an average of 0.9bp. However, with the Federal Open Market Committee (FOMC) event risk behind us and 5s30s yields steeper by 6bp in the aftermath, there is renewed interest in the long bond.

The when-issued 30s are currently trading at 4.764%, which is 7bp cheaper than the November auction stop. This suggests that investors are positioning for a potential positive surprise in the auction. Additionally, 30y swap spreads have been well bid all morning, indicating strong demand for long-term government debt.

Despite the optimistic sentiment, there are some macroeconomic data points scheduled for next week that could impact the auction outcome. The Markit Manufacturing PMI and Construction Spending data are among the key indicators that investors will be watching closely. A strong reading in any of these metrics could temper the appetite for long bonds, leading to a smaller tail or at-screws result at these levels.

The UBS Securities & Treasury desk is biased towards a small tail/at-screws result at these levels to close out the long bond offering for 2025. This stance is based on the current valuation and local concession, which suggest that the auction outcome may be more favorable than expected. However, given the uncertainty surrounding the macroeconomic data and the auction dynamics, it’s essential to maintain a cautious approach in the lead-up to next week’s event.