Treasury 10-year note yields approached the lowest level of the year after a government report showed orders for U.S. durable goods fell in March by the most in seven months, boosting demand for the safest assets.
The U.S. sold $35 billion in five-year securities at a yield of 0.71 percent, the lowest at an auction since November, while demand was the highest in three months. The U.S. Commerce Department reported bookings for goods meant to last at least three years fell 5.7 percent in March, exceeding the median forecast for a 3 percent drop, according to a Bloomberg survey of 78 economists.
“The economic data has been weakening steadily in recent weeks,” said William O’Donnell, head U.S. government-bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, one of 21 primary dealers that are obligated to bid at the auctions. “People are starting to get worried about growth,” which “could keep the money flowing into safe-haven assets like fives today,” O’Donnell said.
The benchmark 10-year note yield less than one basis point, or 0.01 percentage point, to 1.70 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 2 percent note due February 2023 was 102 21/32. The yield dropped to 1.64 percent yesterday, the lowest since Dec. 12.
Current five-year note yields fell one basis point to 0.69 percent.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index fell to a record 50.04 basis points yesterday, below the low of 50.58 basis points reached April 22. The previous low had been 51 basis points in December. The data stretch back to 1988.
The five-year note auction yield compared with a forecast of 0.714 percent in a Bloomberg News survey of seven of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of notes offered, was 2.86, the highest since January, versus an average of 2.81 at the past 10 sales.
Indirect bidders, a class of investors that includes foreign central banks, bought 43.6 percent of the five-year notes today, compared with 46.1 percent at the March sale, the most since April 2012. The average for the past 10 sales is 40.7 percent.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 14 percent at today’s sale, the lowest since September and compared with 16.8 percent at last month’s auction of the securities. The average at the past 10 auctions is 14.7 percent.
“There’s still a lot of uncertainty out there -- there’s a lot of money that wants the safety of U.S. Treasuries,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc.
Five-year notes have climbed 0.6 percent this year, compared with a 0.7 percent return by Treasuries overall, according to Bank of America Merrill Lynch indexes. The five-year securities returned 2.3 percent in 2012, while Treasuries overall advanced 2.2 percent.
The U.S. is scheduled to auction $29 billion of seven-year debt tomorrow, the last of three note sales this week totaling $99 billion.
The sales this week will raise $59.05 billion of new cash, as maturing securities held by the public total $57.95 billion, according to the U.S. Treasury.
Demand rose for the first time since January at yesterday’s $35 billion two-year offering. The bid-to-cover ratio was 3.63 after 3.27 at the last sale and averaged 3.72 at the past 10 sales. The notes were sold at a so-called high yield of 0.233 percent, just above the record-low auction level of 0.22 percent at the July sale.
Bidding has slowed at Treasury auctions this year, with the $702 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 Fed is buying $85 billion of Treasury and mortgage bonds a month to boost the economy by putting downward pressure on borrowing costs, including $1.575 billion of the securities maturing between February 2036 and August 2042 today. Dealers submitted offers for $4.267 billion of the debt.
A Bloomberg News survey published April 22 showed the primary dealers who are required to bid at government-debt auctions expect the central bank will continue the present pace of purchases into at least the fourth quarter of this year.
The central bank has held its benchmark interest rate at zero to 0.25 percent since 2008 to support the economy. It reiterated on March 20 that the rate will remain low as long as unemployment, now at 7.7 percent, stays above 6.5 percent and inflation is projected at no more than 2.5 percent.