The U.S. Treasury sold $29 billion of seven-year notes to the highest demand this year, even with yields on the securities at almost four-month lows, amid speculation the U.S. faces further slowing in economic growth.
The government’s auction of the notes yesterday drew a so-called high yield of 1.155 percent, the least since the Nov. 29 sale of the maturity. The bid-to-cover ratio, which gauges demand for the issue by comparing total bids with the amount of securities offered, was 2.71, the strongest since December. The ratio averaged 2.66 at the past 10 offerings.
“It was a pretty solid auction,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the 21 primary dealers that are obligated to bid U.S. debt sales. “If you take the whole of the March data, most of it’s been weaker. The market is concerned perhaps about the recurrence of this summer soft-patch pattern that we’ve observed over the past three years.”
Yields on current seven-year notes were little changed at 1.12 percent in New York after rising as much as two basis points, or 0.02 percentage point, to 1.14 percent.
The Federal Reserve’s monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities to spur the economy have damped volatility and helped keep Treasury yields at almost historic lows, Simons said.
Borrowing of Treasuries by Wall Street’s biggest bond dealers from the Fed’s daily lending facility is 40 percent higher than last year as the central bank’s bond buying squeezes the available supply.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index fell to a record 49.75 basis points yesterday, dropping below the low of 50.04 basis points reached on April 23. The data stretches back to 1988.
Indirect bidders, a class of investors that includes foreign central banks, bought 39.3 percent of the seven-year notes auctioned yesterday, also the highest level since December. They purchased 35.5 percent at the March sale. The average for the past 10 offerings is 38.6 percent.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 19.7 percent yesterday, versus 19.5 percent at last month’s auction. The average at the past 10 sales is 16.7 percent.
Yesterday’s auction was the final of three note sales this week totaling $99 billion.
Seven-year notes have returned 1.1 percent this year, compared with a 0.7 percent gain by Treasuries overall, according to Bank of America Merrill Lynch indexes. The seven-year securities advanced 3.9 percent in 2012, while Treasuries overall added 2.2 percent.
Bidding has slowed at Treasury auctions this year, with the $721 billion in debt sales attracting an average of $3.01 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, according to data released by the Treasury and compiled by Bloomberg.