Treasuries Rise on 30-Year Auction Demand Before Jobs Reports

Treasuries rose after yields at almost more than two-year highs attracted higher-than-average bids at the U.S. auction of $13 billion of 30-year bonds.

The sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.57, the most since October and compared with an average of 2.38 at the past 10 auctions. U.S. debt fluctuated earlier before a government report tomorrow forecast to show the nation’s jobless rate held at a five-year low amid speculation the Federal Reserve may further curtail its monthly bond-buying.

“The market isn’t ready to push yields on the long end to much higher and as such the auction was pretty strong after cheapening up into the sale,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 21 primary dealers required to bid at the auctions.

The current 30-year bond yield fell one basis points, or 0.02 percentage point, to 3.88 percent at 5:02 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.75 percent securities due in November 2043 gained 7/32, or $2.19 per $1,000 face amount, to 97 23/32. The yield reached 3.97 percent on Jan. 2, the highest since August 2011

Benchmark 10-year yields lost two basis points to 2.97 percent. They climbed to 3.05 percent on Jan. 2, the highest since July 2011.

Auction Detail

The bond auction drew a yield of 3.899 percent, compared with the median estimate of 3.914 percent in in a Bloomberg News survey of 10 of the Fed’s primary dealers.

Indirect bidders, a class of investors that includes foreign central banks, bought 44.4 percent of the bonds, compared with 46 percent of last month’s offering, the most since April 2011. The average at the past 10 offerings was 39.4 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 17.5 percent of the offering, versus 12.5 percent at last month’s sale. The average for the past 10 auctions is 15.6 percent.

The auction was the final of three note and bond offerings this week. The U.S. sold $30 billion of three-year debt on Jan. 7 at a yield of 0.799 percent and $21 billion of 10-year securities yesterday at a yield of 3.009 percent.

Investors “are willing to bid for an attractive yield,” George Goncalves, New York-based head of interest-rate strategy at the primary dealer Nomura Holdings Inc., wrote in a note to clients.

Gross Prefers

Pacific Investment Management Co.’s Bill Gross said investors should focus on shorter-maturity debt as the slow pace of inflation signals the Fed’s benchmark rate will remain at almost zero until at least 2016.

The Fed’s preferred inflation measure has been below its 2 percent target for 19 months. The personal consumption expenditures index, showed prices rose 0.9 percent in the 12 months ended in November, the Commerce Department said Dec. 23. The gauge hasn’t been above 2 percent since April 2012.

“Bond prices -- especially those at the front end of the yield curves, say one to five years, are critically dependent on the future level of fed funds, not the glide path of the almost preordered Fed taper,” of its bond purchases, Gross, manager of the world’s biggest bond fund, wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website.

U.S. 30-year bonds lost 15.1 percent last year and 10-year notes dropped 7.8 percent, according to Bank of America Merrill Lynch indexes, as the Fed prepared to taper its bond buying. Policy makers are cutting purchases to $75 billion a month from $85 billion starting this month.

Jobs Report

The Labor Department will say tomorrow employers added 197,000 workers in December, versus 203,000 the previous month, the median estimate of economists surveyed by Bloomberg shows. The unemployment rate will remain at 7 percent, based on the responses.

“We are range-bound as the market is pricing in a jobs report of more than 200,000 new jobs,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, a primary dealer. “It will take a big miss one way or another to stray from these yield levels.”

Ten-year yields will rise to 3.4 percent by Dec. 31, according to Jennifer Vail, head of fixed-income research at Minneapolis based U.S. Bank Wealth Management, which oversees $112 billion. The yield will reach 3.42 percent, according to a Bloomberg survey of financial companies with the most recent forecasts given the heaviest weighting.

“We do expect more strength in the labor market and the broader economy, and the Fed has reserved the right to speed up taper if they need to, which means higher rates,” she said.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

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

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