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Treasuries Remain Lower After $21 Billion Auction of 10-Year Securities
Treasuries remained lower after the government sold $21 billion in 10-year debt as concern eased that Europe’s sovereign-debt crisis will undermine the global economic recovery.
The offering drew a yield of 2.670 percent, compared with the average forecast of 2.685 percent in a Bloomberg News survey of 8 of the Federal Reserve’s 18 primary dealers. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.21, compared with an average of 3.06 for the previous 10 sales. The auction was the second of three note and bond offerings this week totaling $67 billion.
“There seems to be a lightening of the flight-to-quality bid,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut, before the auction. “There’s been weakness in the Treasury market on an easing of concern about the sovereign risk and banking situation in Europe.”
The yield on the current 10-year note increased 6 basis points, or 0.06 percentage point, to 2.66 percent at 1:05 p.m. in New York, according to BGCantor Market Data.
Indirect bidders, an investor class that includes foreign central banks, purchased 54.7 percent of the 10-year notes, compared with 45.8 percent at the sale on Aug. 11 and an average of 39.2 percent at the previous 10 auctions.
Direct bidders, non-primary-dealer investors who place their bids directly with the Treasury, purchased 6.9 percent of the notes, compared with an average of 13.6 percent for the past 10 sales.
Yield Curve
The extra yield that investors demand for 30-year bonds compared with 10-year debt dropped to 1.06 percentage points before the auction. It touched a record high 1.25 percentage points on Aug. 10. The five-year average is 0.50 percentage point, according to Bloomberg data.
Ten-year securities have returned 13.2 percent this year, outperforming the 8.2 percent gain for the broader Treasury market, according to Bank of America Merrill Lynch indexes.
The Treasury sold $33 billion in three-year debt yesterday at 0.79 percent, the lowest yield on record in an auction of the security. It will sell $13 billion of 30-year bonds tomorrow.
“Yields remain at incredibly low levels, and the belief the macro backdrop is improving could limit the intensity with which bidders participate,” Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York, wrote in a note to clients before the auction.
U.S. Payrolls
Government notes slumped on Sept. 3 after the Labor Department’s payrolls report showed companies added more jobs last month than economists forecast.
Initial jobless claims fell to 470,000 in the week ended Sept. 4 from 472,000, according to the median forecast of 34 economists in a Bloomberg News survey. The report from the Labor Department is due tomorrow.
The Fed will release its Beige Book survey of conditions in its 12 districts today, before officials meet to review monetary policy on Sept. 21.
“We’ll be focused for the Fed’s spin of the state and outlook for the housing market, as well as any insight in the broader conditions of the labor market,” David Ader, head of government bond strategy in Stamford, Connecticut, at CRT Capital Group LLC, wrote in a note to clients.
Ten-year notes fell earlier as corporate bond issuance came off of its busiest day in seven months and Portugal’s sale of bonds maturing in 2021 attracted higher demand compared with a previous offering.
The added yield that investors demand to hold Portuguese 10-year government bonds instead of benchmark German bunds fell earlier from the highest level on record after today’s sale of debt by the Iberian nation. An offering of Poland’s five-year bonds attracted the biggest demand since 2008 after the government pledged to reduce its deficit.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net
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