Treasuries Rise Before Fed Statement as U.S. Sells 30-Year Bonds

Treasury 30-year bonds gained as the U.S. sold $13 billion of the securities before the Federal Reserve is forecast to announce a third round of bond buying to spur economic growth.

The long-bond sale yielded 2.896 percent, compared with a forecast of 2.929 percent in a Bloomberg News survey of six of the Fed’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.68, versus an average of 2.62 at the past 10 sales. Treasuries rose earlier before the Fed issues a statement at 12:30 p.m. in Washington that may include an extension until 2015 of its vow to keep interest rates low.

“The auction was surprisingly good, coming in better than expected, suggesting there is demand for the sector at these yield levels,” said Larry Milstein, managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “It’s comforting that we had a solid auction ahead of the uncertainty of the Fed. The key to the day is the Fed.”

The yield on the benchmark 30-year bond dropped four basis points, or 0.04 percentage point, to 2.88 percent in trading in New York at 12:01 p.m., according to Bloomberg Bond Trader prices. Ten-year note yields decreased four basis points to 1.72 percent.

The yield at today’s offering compared with 2.825 percent at last month’s sale of 30-year securities.

Indirect bidders, a class of investors that includes foreign central banks, bought 38.7 percent of the bonds today, compared with 36.7 percent at the last 30-year auction, on Aug. 9. The average for the past 10 offerings is 32.2 percent.

Direct Bidders

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 12.4 percent, compared with 7.7 percent of the securities at last month’s sale, the fewest since January. The average at the past 10 auctions is 15.4 percent.

“It was a strong auction,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, which as a primary dealer is required to bid in U.S. debt sales. “We’re going to chop around until the Fed announcement.”

Today’s offering completed this week’s note and bond auctions totaling $66 billion. The U.S. sold $21 billion of 10- year notes yesterday and $32 billion of three-year debt on Sept. 11. The 10-year securities drew a bid-to-cover ratio of 2.85.

The government said today it will sell $13 billion in 10- year Treasury Inflation Protected Securities on Sept. 20.

FOMC Statement

Benchmark 10-year yields dropped earlier from almost the highest level in three weeks before the Federal Open Market Committee issues its statement. The central bank already bought $2.3 trillion of assets from 2008 to 2011 in two rounds of the quantitative-easing stimulus strategy.

The Fed also will release policy makers’ forecasts for unemployment, inflation and the expected path of the federal- funds interest rate over the next several years. Initial jobless claims rose more than forecast, data showed.

“Front and center is the FOMC,” said Ray Remy, head of fixed income in New York at the primary dealer Daiwa Capital Markets America Inc. “The market is expecting something, and it runs the gamut from longer guidance to a QE3 program. I would view this as one of the most important FOMC announcements in the last two years.”

Yield Forecast

The yield on the 10-year note will be little changed at 1.74 percent at the end of 2012, according to the median forecast of 70 economists surveyed by Bloomberg News from Sept. 7 to 12.

Initial claims for unemployment benefits in the U.S. increased to 382,000 in the week ended Sept. 8, from a revised 367,000 the previous week, the Labor Department reported. The median forecast of 50 economists in a Bloomberg News survey was for a rise to 370,000.

Investors in Treasuries earned 1.7 percent in 2012 as of yesterday, according to Bank of America Merrill Lynch’s Treasury Master index. The Standard & Poor’s 500 Index of shares returned 16 percent, including reinvested dividends, according to data compiled by Bloomberg.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@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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