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Treasuries Drop After U.S. Sells $13 Billion at Auction

Treasuries declined for a second day after the U.S. sold $13 billion in 30-year securities in the final of three note and bond auctions this week totaling $66 billion.

The yield on the 30-year securities climbed to the highest level since April 6 as the Standard & Poor’s 500-Index posted its biggest two-day gain in 2012. U.S. debt rallied earlier as a report showed initial jobless claims unexpectedly rose last week, reigniting concern the economic recovery is slowing.

“In addition to the supply, risk assets are contributing to the softer tone in Treasuries,” said Richard Bryant, a trader at Mizuho Securities USA Inc. in New York. “Risk assets in general are well bid, so we’re seeing a give and take back between riskless and risk assets. The auction had reasonably balanced demand.”

The yield on the 30-year bond rose two basis points, or 0.02 percentage point, to 3.21 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent security due February 2042 fell 9/32, or $2.81 per $1,000 face amount, to 98 11/32. The yield rose as much as three basis points and declined as much as two basis points.

The 10-year note yield increased two basis points to 2.05 percent. The S&P 500 Index was up 1.4 percent.

Auction Statistics

The securities sold today drew a yield of 3.230 percent, compared with a forecast of 3.233 percent in a Bloomberg News survey of nine of the Fed’s primary dealers.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.76, compared with an average of 2.65 for the past 10 sales.

“The auction was decent, as the market provided cheaper yields that proved to me more attractive, and the market has done better now that we have supply out of the way,” said Sean Murphy, a trader at Societe Generale SA in New York, one of the Federal Reserve’s 21 primary dealers required to bid at the auctions.

Indirect bidders, an investor class that includes foreign central banks, purchased 30.7 percent of the bonds, the most since January and compared with an average of 30.8 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 13.4 percent of the bonds, versus an average of 17.1 percent for the past 10 auctions.

Debt Sales

Today’s auction is the last of three Treasury note and bond offerings this week. The government sold $32 billion in three-year notes on April 10 and $21 billion in 10-year notes yesterday.

This week’s sales will raise $23.1 billion of new cash as maturing securities held by the public total $42.9 billion.

The government announced plans to sell $16 billion of five-year Treasury Inflation Protected Securities on April 19. The U.S. sold $12 billion of the securities at the previous sale Dec. 15.

U.S. 30-year bonds have lost 4.65 percent this year, compared with a 0.33 percent decline in the broader Treasury market, according to Bank of America Merrill Lynch indexes. Long bonds returned 36 percent in 2011, more than triple the 9.8 percent gain by Treasuries overall.

The Fed bought $4.5 billion in Treasuries as part of its plan to bolster the economy. The Fed bought Treasuries due from May 2020 to November 2021, according to the New York Fed’s website. The central bank is replacing $400 billion of shorter-term debt in its holdings with longer maturities to hold down borrowing costs.

Market Value

Valuation measures show government debt has dropped from the most expensive levels in almost five weeks. The term premium, a model created by economists at the Fed, reached negative 0.60 percent today after touching negative 0.65 percent on April 10.

It reached negative 0.26 percent on March 19, the least expensive since October. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

Volatility rose yesterday from the lowest in a month. Bank of America Merrill Lynch’s MOVE index, which measures Treasury price swings based on options, rose to 76.3 basis points. It dropped to 75 basis points on April 10, the lowest since March 13. It reached 93.3 basis points on March 20, the highest level this year.

Wholesale prices in the U.S. excluding food and fuel rose more than forecast in March. The so-called core producer price index climbed 0.3 percent after a 0.2 percent rise the previous month, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median estimate in a Bloomberg News survey. The overall gauge was little changed after a 0.4 percent rise.

Inflation Measure

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices during the life of the debt known as the break-even rate, was 2.31 percentage points. The average for the past decade is 2.14 percentage points.

A measure of traders’ inflation expectations that the Fed uses to help guide monetary policy was at 2.55 percent, below its 2.76 percent average during the past decade. It touched 2.78 percent on March 19, the highest in 2012.

It reached 3.23 percent in August, the highest since December 2010. The five-year, five-year forward break-even rate projects annual price increases over a five-year period beginning in 2017.

Jobless claims climbed to 380,000, the most since Jan. 28, the Labor Department reported. The median forecast of 46 economists in a Bloomberg News survey was for a drop in jobless claims to 355,000 in the week ending April 7.

U.S. employers added 120,000 jobs in March, lower than the 205,000 median forecast in a Bloomberg News survey before the Labor Department report on April 6.

“Combined with the weaker nonfarm payrolls, this uptick in initial jobless claims will cause people to reassess their assumptions that the labor market will continue to improve,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

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