Treasury 10-year note yields fell to the lowest level this year as slowing growth in China and Europe underscored the appeal of U.S. government debt even with the Federal Reserve’s unprecedented stimulus measures.
The U.S. sold $35 billion of two-year notes at a yield of 0.233 percent, just above the record low auction level of 0.22 percent at the July sale. Benchmark 10-year note yields dropped briefly to 1.64 percent, the least since Dec. 12, following the auction after an erroneous report of explosions near the White House, which sent investors to seek the world’s safest assets.
“We have slow growth and will remain stagnant as the market doesn’t seem to want to break either way,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of the 21 primary dealers required to bid at the auction. “The auction came and went and was fair -- this has been exactly where we have been for some time, as the front end isn’t moving much right now given the Fed’s stance.”
Benchmark 10-year note yields rose one basis point, or 0.01 percentage point, to 1.70 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data, after reaching 1.64 percent, the lowest level since Dec. 12. The price of the 2 percent note due February 2023 fell 3/32, or 94 cents per $1,000 face value, to 102 21/32.
Current two-year notes yielded 0.23 percent.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index fell to a record 50.58 basis points yesterday, below the previous low of 51 basis points reached in December. The data stretches back to 1988.
At today’s sale, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.63. The ratio was 3.27 at the last sale and averaged 3.72 at the past 10 sales.
Indirect bidders, an investor class that includes foreign central banks, purchased 20.7 percent of the notes, compared with 20.6 percent at the last sale and an average of 25.83 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 27.7 percent of the notes, compared with 21.8 percent at March sale. The average at the past 10 offerings was 22.5 percent.
Primary dealers purchased 51.6 percent of the notes at today’s sale, compared with 57.6 percent at last month’s sale.
Bidding has slowed at Treasury auctions this year, with the $667 billion in debt sales attracting an average of $2.98 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, data released by the Treasury and compiled by Bloomberg show.
The U.S. plans to sell $35 billion of five-year notes tomorrow and $29 billion of seven-year debt on April 25.
Yields on 10-year notes tumbled six basis points at 1:08 p.m. after an Associated Press report of explosions near the White House. The yields quickly retraced the loss after AP said its Twitter account had been hacked and there was no explosion.
Treasuries rose earlier along with European government bonds, with Italy’s two-year yields falling to a record, as euro-area output contracted for a 15th month in April, boosting speculation the region’s central bank will lower interest rates.
The yield on Italian 10-year government bonds fell below 4 percent for the first time in almost 2 1/2 years, while Spanish and Portuguese yields dropped to the least since 2010. Borrowing costs in France and Ireland declined to the lowest on record, while benchmark German 10-year bund yields slid to the lowest since July.
“We are in a lower-interest-rate-for-longer environment as Europe and other countries are weakening every day, and things aren’t great here, either” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “People are still anticipating the Fed to be fully engaged in easing, and the market is readjusting to that as well as the expectation for Japanese buying that is helping keep the bid.”
A composite index of activity in the service and manufacturing industries in the 17-nation euro bloc was 46.5 this month, a separate report showed.
The preliminary reading of 50.5 for China’s Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics compared with a final 51.6 for March. The figure was also below the median 51.5 estimate in a Bloomberg News survey of 11 analysts. A reading above 50 indicates expansion.
Sales of single-family properties in the U.S. climbed 1.5 percent last month to a 417,000 annual pace from a 411,000 rate in February, Commerce Department figures showed today in Washington. The median estimate of 76 economists surveyed by Bloomberg called for March sales to rise to 416,000.
The Fed is buying $85 billion of Treasury and mortgage bonds a month to boost the economy by putting downward pressure on borrowing costs, including $937 million of securities maturing between August 2023 and February 2031 today, according to the New York Fed’s website.