Treasuries Remain Higher After $24 Billion 10-Year Note Auction

Treasuries remained higher after the U.S. sold $24 billion of 10-year notes as President Barack Obama’s re-election bolstered speculation the Federal Reserve will stick to its policy of buying bonds to support the economy.

The notes drew a yield of 1.675 percent, compared with a forecast of 1.674 percent in a Bloomberg News survey of seven of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.59, versus an average of 3.08 for the past 10 sales. Treasuries gained earlier as Obama and Congress face the so-called fiscal cliff, $600 billion of tax increases and budget cuts scheduled to take effect next year.

“Demand is pretty strong for the 10-year sector,” Carl Lantz, head of interest-rate strategy in New York at Credit Suisse Group AG, said before the sale. As a primary dealer, the firm is obliged to bid in U.S. debt auctions. “We still have the fiscal cliff ahead of us, the Fed’s policy is not going to change any time soon, and bond funds that were reluctant to buy heading into the election are more willing to buy now.”

The yield on the current 10-year note dropped 11 basis points, or 0.11 percentage point, to 1.64 percent at 1:04 p.m. in New York, according to Bloomberg Bond Trader prices. Earlier it touched 1.62 percent, the lowest level since Oct. 3.

Indirect Bidders

Indirect bidders, an investor class that includes foreign central banks, purchased 39.7 percent of the notes, compared with an average of 39.4 percent at the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 14.1 percent of the notes, compared with an average of 18.7 percent at the past 10 auctions.

Ten-year U.S. debt has gained 3.6 percent this year, according to Bank of America Merrill Lynch indexes, outperforming the 1.8 percent gain in the broader Treasury market. The notes returned 17 percent in 2011, versus a 9.8 percent gain by Treasuries overall.

The Treasury is due to auction $16 billion of 30-year debt tomorrow after selling $32 billion of three-year notes yesterday.

While Obama, a Democrat, defeated Republican challenger Mitt Romney narrowly in the popular vote, he achieved an electoral sweep by carrying the crucial states of Colorado, Ohio and Virginia. With Florida too close to call, Obama had captured 303 Electoral College votes, well beyond the 270 needed to win the White House.

Republican House

Republicans kept a majority in the House of Representatives, and Democrats retained control of the Senate.

Obama was re-elected with the highest jobless rate of any president returned to office since Franklin Roosevelt in 1936. Unemployment was at 7.9 percent in October.

Ever since Lyndon B. Johnson defeated Barry Goldwater for the presidency in 1964, yields on 10-year Treasuries have dropped about 40 basis points in the first month when a Democrat wins, and risen 19 after a Republican victory, according to data compiled by Bloomberg.

The U.S. may lose its AAA credit rating next year if the government fails to resolve the fiscal cliff, provide a timely increase in the debt ceiling and reduce the deficit, according to Fitch Ratings. The automatic spending cuts and tax increases might push the U.S. back into recession.

“Failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner as well as securing agreement on credible deficit reduction would likely result in a rating downgrade in 2013,” Fitch said today in a statement.

Standard & Poor’s stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political wrangling that pushed the nation to the deadline for an agreement to lift the debt ceiling.

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