Treasuries pared gains after a sale of $13 billion of 30-year U.S. securities drew a higher yield than forecast.
The 30-year bonds at the auction yielded 4.515 percent, compared with an average estimate of 4.511 percent in a Bloomberg News survey of 6 of the Federal Reserve’s 18 primary dealers. U.S. government securities earlier gained after the Fed bought $8.4 billion of Treasuries maturing from July 2016 to December 2017 as part of its $600 billion bond-purchase plan, according to its website.
“We had a pretty dramatic move leading up to the auction,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “It was a pretty hairy ride. It was tough for dealers to set up. We got a tail off of the richest levels of the day.”
The yield on the 30-year bond declined one basis point, or 0.01 percentage point, to 4.53 percent at 1:39 p.m. in New York, according to BGCantor Market Data. It dropped as much as seven basis points before the sale. Ten-year note yields fell four basis points to 3.33 percent, after earlier losing seven basis points.
“The Treasury purchase program was more aggressive than thought and that added ‘umph’ to the market,” Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney, said before the auction. “The market is in a situation where when yields rise, investors come in and take advantage of it.”
The difference between yields on U.S. 2- and 30-year securities earlier widened to a record as investors demanded higher compensation against the risk of inflation as the economy gains traction.
At today’s sale of long bonds, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.67. The average at the last 10 auctions was 2.70. Thirty-year bonds yielded 4.41 percent at the last offering on Dec. 9.
Indirect bidders, a class of investors that includes foreign central banks, bought 37.8 percent of the bonds, compared with 49.5 percent in December, the most since July 2009. The average for the past 10 sales is 36.9 percent.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 12.4 percent of the debt, compared with 8.1 percent at the December offering and a 10-sale average of 16.8 percent.
The sale was a reopening of the Nov. 10 auction of 30-year bonds, which drew yield of 4.32 percent.
Government reports today showed the U.S. producer price index rose last month by the most in 11 months, while the trade deficit unexpectedly narrowed in November. Another report showed initial jobless benefit claims rose more than forecast last week.
The U.S. sold $21 billion of 10-year notes yesterday at a yield of 3.3 percent, the highest level since April. A $32 billion auction of three-year debt on Jan. 11 sold at 1.027 percent, the highest yield since July. The U.S. will sell $13 billion of 30-year debt tomorrow, completing this week’s $66 billion of note and bond sales.
U.S. 30-year bonds returned 8.7 percent this year, compared with 5.9 percent for the overall Treasury market, according to Bank of America Merrill Lynch indexes.
The Fed will buy tomorrow $6 billion to $8 billion of U.S. securities due from January 2015 to June 2016, according to its website.