Treasuries remained higher as the U.S. sold $35 billion in five-year notes to the most demand in four months.
The debt drew a yield of 1.436 percent, compared with a forecast of 1.422 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount sold, was 2.67, the highest since the May auction. Treasuries rose earlier amid bets U.S. budget talks risk a government shutdown. The Fed declined last week to slow its bond buying, saying it needs more evidence of economic gains.
“The auction seemed to be a decent, but not a blowout, sort of auction,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We continue to see a market being driven by what’s going on in Washington, the potential for the government to shut down. That angst in the marketplace is driving Treasury prices higher.”
The yield on the current five-year note fell two basis points, or 0.02 percentage point, to 1.41 percent at 1:28 p.m. in New York, according to Bloomberg Bond Trader Prices. The benchmark 10-year yield declined two basis points to 2.64 percent after touching a six-week low of 2.63 percent earlier.
Five-year notes at last month’s sale yielded 1.624 percent.
Indirect bidders, an investor class that includes foreign central banks, purchased 44.9 percent of the notes sold today, compared with an average of 44 percent for the past 10 auctions.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 11.8 percent of the notes, compared with an average of 15.6 percent at the past 10 offerings.
Five-year notes have lost 1.9 percent this year, versus a loss of 2.6 percent for Treasuries overall, according to Bank of America Merrill Lynch indexes. The five-year securities returned 2.3 percent in 2012, while Treasuries overall rose 2.2 percent.
Today’s offering is the second of three note auctions this week totaling $97 billion. The government sold $33 billion in two-year debt yesterday at a yield of 0.348 percent, and will sell $29 billion in seven-year securities tomorrow.
The sales this week, along with last week’s $13 billion 10-year Treasury Inflation Protected Securities auction, will raise $47.7 billion of new cash, as maturing securities held by the public total $62.3 billion, according to the Treasury.
Investors bid $2.88 for each dollar of the $1.589 trillion in U.S. government notes and bonds sold at auction this year, according to Treasury data compiled by Bloomberg. That’s down from the record $3.15 for the $2.153 trillion sold at last year’s offerings.
The Senate is set to hold a test vote today on legislation passed by the House of Representatives to cover federal spending through Dec. 15. House Republicans are demanding the defunding of President Barack Obama’s health-care law as the price for a temporary measure to keep the government open.
The deadline for action is Sept. 30, when the federal fiscal year ends. Obama has said he won’t accept the condition, setting up the possibility of a government shutdown if the issue isn’t resolved on time.
Republicans also are imposing a series of conditions, including concessions on government spending levels and a revamp of the tax code, to raise the nation’s $16.7 trillion debt limit, which U.S. Treasury officials say they expect to exhaust as soon as mid-October.
Treasury Secretary Jacob J. Lew said yesterday in New York investor confidence a deal can be struck to raise the debt limit is “a bit greater than it should be.”