Treasuries pared gains after a record sale of $14 billion of five-year inflation-indexed securities drew a negative yield for a second straight offering.
The auction of Treasury Inflation Protected Securities drew a yield of negative 0.180 percent, compared with the forecast of negative 0.1825 percent in a survey of 6 primary dealers. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.57, versus 2.84 at the last offering and 3.15 at the one before that. The U.S. said it will sell $99 billion next week of two-, five- and seven-year notes.
“The auction didn’t go as well as many expected, as the bid-to-cover is on the low side compared to recent history,” said Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas SA, one of 20 primary dealers are obligated to bid at Treasury debt sales. “Data surprised to the downside, which is keeping the market bid, but it’s a short day with low liquidity.”
Ten-year note yields fell three basis points to 3.38 percent at 11:48 a.m. in New York, according to Bloomberg Bond Trader prices. Five-year note yields slipped one basis point to 2.10 percent.
Indirect bidders, a category of investors that includes foreign central banks, bought 39.5 percent of the securities of the sale, compared with the average for the past 10 auctions of 34.2 percent. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 2.70 percent of the securities, versus an average of 2.72 percent at the past 10 offerings.
That last sale of the notes, on Oct. 25, drew a negative yield for the first time at a U.S. debt auction as investors bet the Federal Reserve stimulus efforts would be successful in sparking demand. The yield was negative 0.55 percent.
Holders of TIPS receive an adjustment to the principal value of their securities equal to the change in the consumer price index, in addition to a fixed rate of interest that’s smaller than the interest paid to a holder of conventional debt. The difference between is known as the break-even rate.
Treasuries rose earlier as a gauge of manufacturing in the Philadelphia area dropped more than forecast and initial claims for jobless benefits fell less than predicted, bolstering speculation the recovery is faltering.
The Philadelphia Fed’s general economic index tumbled to 18.5 in April, the lowest since November, from 43.4 the prior month, which was the highest level since 1984.
“The Philadelphia Fed is another indication that that U.S. economy is succumbing to some of the high hurdles it faces going forward,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “Bonds are reacting positively.”
Jobless claims decreased by 13,000 to 403,000 in the week ended April 16, Labor Department figures showed today in Washington. Economists projected a decline to 390,000, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls and those receiving extended payments declined.
The government will sell $35 billion in two-year notes, $35 billion in five-year debt and $29 billion in seven-year securities at auctions next week. The sizes of the trio of offerings have been unchanged since October, and matched the average forecast in a Bloomberg News survey of nine of the Federal Reserve’s 20 primary dealers.
Trading of U.S. government bonds will close at 2 p.m. in New York and stay shut tomorrow for the Good Friday holiday, under a Securities Industry and Financial Markets Association recommendation.