Treasuries extended gains after yields almost at the highest levels since 2011 bolstered demand at the U.S. sale of $29 billion in seven-year securities in the final of three note auctions this week.
The offering drew a yield of 1.932 percent, compared with a forecast of 1.942 percent in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.61, versus an average of 2.67 for the past 10 sales. Treasuries rose earlier as New York Fed President William C. Dudley said policy makers may prolong its asset-buying program if growth fails to meet Fed forecasts.
“The seven-year went well,” said David Coard, head of fixed-income trading in New York at Williams Capital Group LP, a brokerage for institutional investors. “People probably feel like the Fed has had some success in persuading the market that they may have over-reacted to the comments made last week by Bernanke.”
The yield on the current seven-year note dropped six basis points, or 0.06 percentage point, to 1.90 percent at 1:24 p.m. in New York, according to Bloomberg Bond Trader Prices. It touched 2.11 percent on June 24, the highest level since August 2011. Benchmark 10-year note yields fell seven basis points to 2.47 percent.
Indirect bidders, an investor class that includes foreign central banks, purchased 46.4 percent of the notes, the most since August 2011, compared with an average of 37.8 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 15.7 percent of the notes, the least since July 2012. The average at the past 10 auctions was 19.4 percent.
Seven-year notes have lost 3.9 percent this year, compared with a decline of 2.8 percent by Treasuries overall, according to Bank of America Merrill Lynch indexes. The seven-year securities returned 3. 9 percent in 2012, while Treasuries overall rose 2.2 percent.
Today’s offering is the final of three note auctions this week totaling $99 billion. The government sold $35 billion in two-year debt on June 25 and another $35 billion in five-year debt yesterday.
The sales will raise $40.7 billion of new cash, as maturing securities held by the public total $58.3 billion, according to the U.S. Treasury.
Investors have bid $2.94 for each $1 of the $1.077 trillion of notes and bonds sold by the Treasury in the first half of 2013, compared with a record high $3.15 for all of last year.
Treasuries gained earlier as Dudley said any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.”
“The Fed is trying to steer the market a little bit away from thinking rates are going to go up” soon, said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. “They are on hold for a long period.”
Bonds pared gains after the National Association of Realtors’ index of pending U.S. home sales jumped 6.7 percent to 112.3, the highest since December 2006.
The Fed is purchasing $85 billion of U.S. government debt and mortgage-backed securities every month to put downward pressure on borrowing costs during the third round of its quantitative-easing stimulus program. It has kept its benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy.
Chairman Ben S. Bernanke said June 19 the central bank may slow stimulus this year and end it entirely in mid-2014 if economic growth meets its projections.
To contact the reporter on this story: Jeff Marshall in New York at Jmarshall75@bloomberg.net