Treasury 10-Year Yields at Almost One-Week Low Amid Sales

Treasury 10-year note yields traded at almost a one week-low as the government sold $13 billion in floating-rate securities, the first of two note auctions totaling $48 billion.

Bonds pared gains after sales of new U.S. homes unexpectedly climbed last month. Safety demand rose as Russia ordered military tests amid tensions in Ukraine. Treasuries were little changed in February, based on the Bloomberg U.S. Treasury Bond Index. (BUSY) The government will sell $35 billion of five-year debt in a second sale today.

“The market stays range-bound,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 22 primary dealers that are obligated to bid in U.S. debt sales. “People are still expecting a low-rate environment going forward. There’s still a safe-haven bid given concerns in the world. I don’t think you’ll see rates ratchet higher.”

The benchmark 10-year note yield was little changed at 2.7 percent at 12:03 p.m. New York time, according to Bloomberg Bond Trader data. It fell earlier to 2.68 percent, the lowest level since Feb. 19. It has increased six basis points, or 0.06 percentage point, this month.

The yield on the current five-year note traded little changed at 1.51 percent. It touched 1.49 percent, the lowest since Feb. 20.

First Auction

The auction of floating-rate notes, the second since the government introduced the securities, had a high discount margin of 0.064 percent, compared with 0.045 percent at the first sale last month. The spread over three-month Treasury bills, the security’s benchmark, was 0.045 percent, the same as at the January offering.

The bid-to-cover ratio, a gauge of demand that compares the amount bid with the amount offered, was 5.29, versus 5.67 on Jan. 29.

Because they’re benchmarked to a short-term security, the floating-rate notes are considered an alternative to bills.

“The auction was pretty good,” said Thomas Simons, a government-debt economist in New York at the primary dealer Jefferies LLC. “The Treasury should be happy with how these are going. The fact that these weren’t abandoned and that demand was so similar to last month is encouraging. There is a market developing for these.”

Five-Years

The five-year notes to be auctioned today yielded 1.540 percent in pre-auction trading, compared with 1.572 percent at last month’s offering on Jan. 30.

Bids totaled 2.59 times the amount available at the January sale, matching the average at the past 10 offerings of the maturity.

The government is scheduled to auction $29 billion of seven-year securities tomorrow. It sold $32 billion of fixed-rate two-year notes yesterday at a yield of 0.34 percent.

Treasuries were supported today by fixed-income funds that manage portfolios against benchmark indexes and typically purchase longer-maturity Treasuries at month-end to align their holdings’ interest-rate sensitivity with the indexes. Barclays Plc said via e-mail yesterday its U.S. Aggregate Index will extend its duration, the measure of rate sensitivity, by 0.10 year on March 1, compared with 0.09 year on Feb. 1.

New-home (NHSLCHNG) sales increased 9.6 percent to a 468,000 annualized pace, exceeding the highest estimate of economists surveyed by Bloomberg and the most since July 2008, figures from the Commerce Department showed today in Washington.

Treasuries were little changed this month after returning 1.8 percent in January, according to the Bloomberg U.S. Treasury index. Losses this month have stemmed in part from flows out of fixed-income and into equity funds.

Investor Flows

Investor flows of $250.5 million into exchange-traded funds of U.S. fixed income securities on Feb. 25 were below the 20-day average of $960 million and the five-day mean of $323 million, suggesting a diminished appetite for debt, according to ETF data compiled by Bloomberg.

Investors have favored ETFs investing in U.S. stocks, which took in $3.9 billion on Feb. 25, above the 20-day average of $2.7 billion, Bloomberg data show.

U.S. fixed-income ETFs have taken in $17 billion so far this year, compared with $15.9 billion in outflows from domestic equity funds, Bloomberg data show.

Treasuries lagged behind stocks amid confidence the Federal Reserve will tailor its reduction in bond-buying to support riskier assets even if the U.S. economic recovery keeps weakening. The MSCI All-Country World Index of shares gained 4.3 percent including reinvested dividends.

The Fed cut its bond-buying program by $10 billion a month in January and fin February, reducing purchases to $65 billion. It bought $1.25 billion of Treasuries today due from May 2038 to February 2043 as part of the program.

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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