Treasuries Lower After $28 Billion Three-Year Note Sale

Treasuries remained lower after the U.S. sold $28 billion of three-year securities at the highest yields since May 2011.

The notes yielded 0.930 percent, compared with a forecast of 0.924 percent in a Bloomberg News survey of eight of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.41, versus 3.4 at the last sale. Treasury yields have risen since the Labor Department reported June 6 that the U.S. added more than 200,000 jobs for a fourth consecutive month for the first time since 1999-2000.

“A lot of people thought the market had room to run, but it’s certainly had a quick reversal,” Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, said before the auction. The firm is obligated as a primary dealer to bid in U.S. debt sales. “My bias is for higher yields.”

The yield on the current three-year note rose three basis points, or 0.03 percentage point, to 0.89 percent at 1:04 p.m. in New York, according to Bloomberg Bond Trader Prices. The yield on the benchmark 10-year note rose four basis points to 2.64 percent.

Indirect bidders, an investor class that includes foreign central banks, purchased 26.5 percent of the notes sold today, compared with an average of 33.6 percent at the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 19.4 percent of the notes at the sale, compared with an average of 18.8 percent at the past 10 auctions.

Note Returns

Three-year notes have returned 0.5 percent this year, compared with a gain of 2.6 percent by the broader Treasuries market, according to Bank of America Merrill Lynch indexes. The three-year securities lost 0.1 percent in 2013, while Treasuries overall fell 3.4 percent.

Today’s offering is the first of three note and bond auctions this week totaling $62 billion. The government will sell $21 billion in 10-year debt tomorrow and $13 billion in 30-year securities on June 12.

The sales will raise $30 billion of new cash, as maturing securities held by the public total $32 billion, according to the U.S. Treasury.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle, Paul Cox

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