Treasuries Rise After Strong Auction of Five-Year Notes

Treasuries rose after the U.S. sale of $35 billion in five-year notes was met with stronger-than-forecast demand ahead of the Federal Open Market Committee statement on the direction of U.S. monetary policy.

The notes drew a yield of 0.899 percent, compared with a forecast of 0.919 percent in a Bloomberg News survey of 10 of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.17, the highest since May, versus an average of 2.863 for the previous 10 sales. Treasuries yields fell before the FOMC’s policy statement at 12:30 p.m.

“We’ve cheapened up in recent days, making the sector more attractive,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, a primary dealer. “There are still risk-averse buyers out there who understand that the Fed will be on hold for some time, and that means investors are still hunting for yield.”

The yield on the current five-year note fell two basis points, or 0.02 percentage point, to 0.87 percent, at 11:34 a.m. in New York, according to Bloomberg Bond Trader prices. The yield on the benchmark 10-year note fell one basis point to 2.05 percent.

Indirect bidders, an investor class that includes foreign central banks, purchased 43.4 percent of the notes, compared with an average of 43.7 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 15.1. percent of the notes, compared with an average of 11.3 percent at the last 10 auctions.

$99 Billion

Five-year notes lost 0.2 percent this year, compared to the the 0.8 percent loss for the broader Treasury market, according to Bank of America Merrill Lynch indexes.

Today’s auction is the second of three note sales totaling $99 billion this week. The U.S. sold $35 billion of two-year notes yesterday and will auction $29 billion of seven-year securities tomorrow.

At 2 p.m., the central bank plans for the first time to release forecasts from FOMC participants for the main interest rate, and Chairman Ben S. Bernanke plans to hold a press conference at 2:15 p.m.

The FOMC left its target for overnight loans between banks in a range of zero to 0.25 percent last month and reiterated that economic conditions may warrant “exceptionally low” rates at least through mid-2013. The central bank is forecast to keep the key rate unchanged today, a Bloomberg survey shows.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE