U.S. 10-Year Note Auction Draws Highest Indirect Bid Since June

The Treasury’s $24 billion sale of 10-year notes attracted the most demand in five months from a class of investors that includes foreign central banks as the Federal Reserve assesses the future of its bond-buying program.

Indirect bidders purchased 47.7 percent of the notes at the auction yesterday, the highest level since the June 12 offering of the securities. The figure compares with an average of 38.7 percent for the past 10 sales. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.7, compared with 2.58 at the October sale.

“It’s an attractive level compared with other assets in the world,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers required to bid at U.S. debt auctions. “Treasury yields aren’t going to go significantly higher from here.”

The yield on the current 10-year note dropped seven basis points, or 0.07 percentage point, to 2.7 percent at 5 p.m. in New York yesterday, according to Bloomberg Bond Trader prices. It climbed on Nov. 12 to 2.79 percent, the highest level since Sept. 18. The price of the 2.5 percent note due in August 2023 rose 5/8, or $6.25 per $1,000 face amount, to 98 9/32.

The auction drew a yield of 2.75 percent, the second-highest level at a sale of the notes in more than two years. The Treasury in September sold $21 billion of the securities at a yield of 2.95 percent, the highest since June 2011. Yields have increased on speculation the Fed may scale back its $85 billion a month in bond purchases as soon as December.

Direct Bidders

“Great auction,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., a primary dealer. “We’re two-thirds through the supply period, and I don’t expect them to taper in December.”

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 18.6 percent of the notes at the sale, compared with an average of 20.9 percent at the past 10 auctions.

Investors bid $2.88 for each dollar of the $1.839 trillion in U.S. government notes and bonds sold at auction 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.

Fed policy makers will pare the monthly pace of bond-buying to $70 billion at their March 18-19 meeting, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8. In an Oct. 17-18 survey of 40 economists, the median forecast also called for a reduction to $70 billion in March.

Treasury Returns

Ten-year notes have lost 6.4 percent this year, compared with a decline of 2.8 percent by the broader Treasuries market, according to Bank of America Merrill Lynch indexes. The 10-year securities returned 4.2 percent in 2012, while Treasuries overall gained 2.2 percent.

The government will auction $16 billion in 30-year bonds today after selling $30 billion of three-year debt on Nov. 12 at a yield of 0.644 percent. The sales will raise $6.5 billion of new cash, as maturing securities held by the public total $63.5 billion, according to the Treasury.

To contact the reporter on this story: 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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