Treasuries Fluctuate Before Note Auction Caps Largest U.S. 2-Week Offering

Treasury notes fluctuated before the U.S. sells $29 billion of seven-year notes today in the last of seven note, bond and inflation-indexed debt auctions totaling $177 billion over the past two weeks, the most ever.

Thirty-year bond yields touched a one-week high after the number of existing homes sold last month in the U.S. increased. Treasuries fell earlier on speculation that stronger-than- forecast lending in a European Central Bank program will help stem the euro region’s sovereign-debt crisis.

“The market is in a wait-and-see mode with respect to Europe, and the only thing that has kept the market from going lower in yield has been better U.S. data,” said Dan Greenhaus, chief global strategist at BTIG LLC in New York. “Still, we’ve seen pretty decent auctions overall suggesting that there is still robust demand for Treasuries, even at lower yield levels, given the persistent concerns from overseas.”

Ten-year note yields rose two basis points, or 0.02 percentage point, to 1.94 percent at 12:38 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities due in November 2021 declined 6/32, or $1.88 per $1,000 face amount, to 100 1/2. The yields touched 1.96 percent earlier and fell to as low as 1.89 percent. They increased 11 basis points yesterday, the steepest climb since Oct. 27.

Thirty-year bond yields increased five basis points, or 0.05 percentage point, to 2.97 percent, the most since Dec. 14, after falling earlier to 2.90 percent.

The yield on benchmark 10-year debt has fallen 135 basis points in 2011, set for the biggest annual decline in three years, as concern the European debt crisis will spread prompted investors to seek a refuge. The yield sank to a record low 1.67 percent on Sept. 23.

Seven-Year Auction

The Fed sold $8.12 billion of Treasuries due from November 2013 to March 2014 in the first of two sales today. It will sell as much as $8.75 billion of debt due in 2013 in the second offering. The central bank is replacing $400 billion of short- term debt in its portfolio with longer-term securities in a program to lower borrowing costs.

Thirty-year yields rose after the National Association of Realtors reported existing-home sales increased 4 percent to a 4.42 million annual pace, beating the 2.2 percent forecast in a Bloomberg News survey, from a revised 4.25 million rate the prior month.

The number of existing homes sold in the U.S. was revised down by an average 14 percent since 2007, magnifying the depth of the slump that contributed to the last recession.

Data Revisions

Purchases were revised to 4.19 million for 2010, down 15 percent from a prior estimate of 4.91 million, the real estate agents’ group said in Washington. There was a comparable downward revision to inventory, and median prices were little changed from prior estimates.

“The market seems to be taking it as a positive,” Michael Pond, co-head of interest-rate strategy in New York at Barclays Plc, said. The firm is one of 21 primary dealers that trade with the Fed. “Data has been coming in stronger, but there are plenty of uncertainties that remain, so it’s been tough to sell off or rally with any conviction.”

U.S. consumer spending rose for a Bloomberg News survey forecast before a government report due Dec. 23.

Seven-year notes being offered today yielded 1.422 in pre- auction trading. The securities drew a record low yield of 1.415 percent at the last offering of the maturity on Nov. 23 as investors sought safety amid concern the European debt crisis would spread.

Record Low Yield

The U.S. sold $35 billion of five-year notes yesterday at a record low yield of 0.88 percent as demand fell relative to the last auction of securities with the same maturity. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.86, versus 3.15 at the November offering. The government’s sale of $30 billion of four- week bills yesterday had a bid-to-cover of 9.07, a record high.

The government has sold $2.135 trillion of notes, bonds and inflation-indexed debt this year, including today’s offering. It auctioned $2.249 trillion in 2010 and $2.109 trillion in 2009.

Treasuries have returned 9.6 percent return this year, Bank of America Merrill Lynch indexes showed. German government bonds have gained 9 percent, and Japanese bonds have advanced 2.1 percent.

ECB Financing

Investor appetite for higher-yielding assets shrank amid fading optimism the ECB’s three-year loans to euro-area banks will restore confidence in sovereign borrowers. The central bank awarded 489 billion euros ($645 billion) in 1,134-day loans in its longer-term refinancing operation, the most ever in a single operation and more than the median estimate of 293 billion euros in a Bloomberg News survey.

“The result of the LTRO was pretty good, but now people are saying that some of that extra demand was from people moving out of the one-year into the three-year program,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.

Stocks fell, with the Standard & Poor’s 500 Index declining 0.9 percent.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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