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Treasuries Extend Losses After Auction of $13 Billion in 30-Year Bonds

Treasuries fell as the government sold $13 billion of 30-year bonds after economic reports showed initial jobless claims dropped last week more than economists forecast and the trade deficit narrowed.

The bonds drew a yield of 3.820 percent, compared with the average forecast of 3.806 percent in a Bloomberg News survey of 9 of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.73, versus 2.77 at the auction last month and an average of 2.65 for the past 10 offerings. Today’s sale, a reopening of the August sale, is the final of three note and bond auctions this week totaling $67 billion.

“There’s a lot of supply, not just here, but globally,” said Thomas Tucci, head of U.S. government bond trading in New York at the primary dealer Royal Bank of Canada in New York, before the auction. “There’s concern about the global supply picture and if rates will attract enough buyers.” As a primary dealer, RBC is obligated to participate in Treasury auctions.

The yield on the 30-year bond gained 10 basis points, or 0.10 percentage point, to 3.83 percent at 1:05 p.m. in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note gained 9 basis points to 2.75 percent.

The extra yield that investors demand for 30-year bonds compared with 10-year debt was 1.07 percentage points before the auction. It touched a record high 1.25 percentage points when Fed policy makers met Aug. 10. The five-year average is 0.50 percentage point, according to Bloomberg data.

Indirect Bidders

Indirect bidders, an investor class that includes foreign central banks, purchased 36.1 percent of the bonds today, compared with 46 percent at the Aug. 12 sale and an average of 36.6 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors who place their bids directly with the Treasury, bought 8.3 percent, compared with an average of 18 percent for the past 10 sales.

Thirty-year bonds have returned 20 percent to investors this year, compared with an 8 percent gain for the broader Treasury market as of yesterday, Bank of America Merrill Lynch indexes show.

Treasuries dropped earlier as the Labor Department reported that initial jobless claims fell more than expected to 451,000 in the week ended Sept. 4, from a revised 478,000. The median forecast of 46 economists in a Bloomberg News survey was for a drop to 470,000 from a previously reported 472,000.

The global economic recovery is proving slower than projected, and policy makers may need to extend or bolster stimulus programs to support it, the Organization for Economic Cooperation and Development said.

G-7 Outlook

Recent data suggest the economy of the Group of Seven nations could grow at an annualized rate of about 1.5 percent in the second half, below the 1.7 percent previously envisaged and the 3 percent rate of the first six months of the year, the Paris-based organization said today.

Treasuries rallied on Aug. 10, when the Fed said at the conclusion of its policy meeting that it would keep its bond holdings level by resuming the purchase of U.S. debt to support a recovery it described as weaker than earlier anticipated.

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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