Treasury 30-year bonds rose, pushing yields to almost two-week lows, as investors weigh the prospects for U.S. military action against Syria, stoking haven demand.
Treasuries erased losses after the U.S. sold $29 billion in seven-year notes at a yield of 2.221 percent, compared with a forecast of 2.232 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. White House press secretary Josh Earnest said the administration still plans to publicly release “before the end of the week” an unclassified version of the intelligence assessment of the alleged chemical weapons attack in Syria. Benchmark 10-year yields rose earlier as a report showed the economy expanded last quarter faster than previously forecast.
“Syria and whatever happens there is a net positive for government securities,” said Ray Remy, head of fixed-income in New York at Daiwa Capital Markets America Inc. “We also have supply out of the way.”
Yields on 30-year bonds fell two basis points, or 0.02 percentage point, to 3.71 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.625 percent securities maturing in August 2043 added 3/8, or $3.75 per $1,000 face amount, to 98 3/8.
U.S. debt was also supported today by month-end buying to match market indexes. Funds that manage portfolios against benchmark indexes, including the Barclays U.S. Aggregate Index, typically buy longer-maturity Treasuries at almost month-end to align the interest-rate sensitivity of their holdings with the indexes.
The Barclays index will extend its duration, the measure of rate-sensitivity, by 0.11 year on Sept.1, compared with 0.10 year on Aug. 1.
Treasuries lost 3.3 percent this year through yesterday, including 0.8 percent in August, according to Bloomberg U.S. Treasury Bond Index. (BUSY)
At today’s sale, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.43, the least since May 2009 and versus an average of 2.65 for the past 10 sales.
Indirect bidders, an investor class that includes foreign central banks, purchased 40.8 percent of the notes, compared with an average of 39.9 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 22.4 percent of the notes at the sale, compared with an average of 19.1 percent for the past 10 auctions.
Seven-year notes have lost 4.8 percent this year, versus a drop of 3.4 percent for 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 last of three note auctions this week totaling $98 billion. The government sold $34 billion in two-year debt on August 27 and $35 billion in five-year securities yesterday.
The sales will raise $38.1 billion of new cash, as maturing securities held by the public total $59.9 billion, according to the U.S. Treasury.
Investors have bid $2.87 for each dollar of the $1.443 trillion in U.S. government notes and bonds sold at auctions this year, according to Treasury data compiled by Bloomberg. That’s down from the record $3.15 for the $2.153 trillion sold at last year’s offerings.
Treasuries rose earlier this week on speculation the U.S., France and Britain were moving closer to military action against Syria after the nation’s government allegedly used chemical weapons against civilians.
U.S. President Barack Obama and U.K. Prime Minister David Cameron face a decision whether to attack Syria without a UN mandate amid Russian resistance, demands for consultation from lawmakers at home and domestic opposition to involvement in another conflict in the Middle East.
The USS Stout is en route to join four other destroyers already in the region, according to a defense official who asked not to be identified discussing military preparations.
“People are speculating there may be a strike over the weekend,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York.
The Fed bought $1.6 billion of securities maturing from February 2036 to February 2043 today, according to the New York Fed’s website. Debate about when policy makers will start to taper the $85 billion in monthly bond buying has roiled financial markets around the world in the past three months and sparked a selloff in fixed-income assets.
The economy expanded at a faster pace in the second quarter as a smaller trade deficit and gains in inventories overshadowed the effects of federal budget cutbacks. The economy grew at a 2.5 percent annual pace in the second quarter, more than forecast and up from the previous estimate of 1.7 percent. Growth topped the median forecast of 79 economists surveyed by Bloomberg that projected a 2.2 percent gain.
Jobless claims in the week ended Aug. 24 dropped 6,000 to 331,000 from a revised 337,000 the week before that was higher than initially reported, the Labor Department said. The median forecast of 50 economists surveyed by Bloomberg called for a drop to 332,000.
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