The U.S. auction of $24 billion of 10-year notes drew the largest share since June of bidders from an investor class that includes foreign central banks as a back-up in yields and concern economic growth is uneven fueled demand for safety.
The securities drew a yield of 2.795 percent, the lowest level since November, at yesterday’s sale. Federal Reserve Chairman Janet Yellen said Feb. 11 policy makers were on course to reduce bond purchases further, pushing yields up. Ten-year yields rose to a two-week high yesterday after touching a three-month low on Feb. 3 on concern emerging-market turmoil could slow global growth.
“It was a reasonably strong auction given the weakness in the market,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of the 22 primary dealers obligated to bid in U.S. debt sales. “We’ll be pretty range-bound until we get a clear picture not only of job growth but also of the global economy as a whole.”
The current 10-year note yield rose four basis points, or 0.04 percentage point, to 2.76 percent yesterday in New York, according to Bloomberg Bond Trader prices. It touched 2.78 percent, the highest level since Jan. 29, after dropping to 2.57 percent on Feb. 3, the lowest since Nov. 1. The price of the 2.75 percent security due in November 2023 dropped 10/32, or $3.13 per $1,000 face amount, to 99 29/32.
The auction’s yield compared with 3.009 percent at the January 10-year note sale, the highest since May 2011. The average at the past 10 offerings was 2.529 percent.
Indirect bidders, the category that includes foreign central banks, bought 49.7 percent of the notes. The average at the past 10 offerings was 42.6 percent.
“It was a great auction,” said Ray Remy, head of fixed income in New York at the primary dealer Daiwa Capital Markets America Inc. “The indirect bidders took almost 50 percent. The back-up in yields is the major thing. It was a new issue, and the yield is 12 basis points higher than it was a week ago.”
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 16.2 percent compared with 13.6 percent in January and an average of 18.3 percent at the past 10 sales.
Primary dealers took 34.1 percent of the notes, the lowest level since November, versus an average of 39.1 percent at the past 10 offerings.
The sale’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of notes offered, was 2.54, versus an average of 2.65 at the past 10 sales of the maturity.
An auction on Feb. 11 of $30 billion in three-year notes drew a yield of 0.715 percent, compared with the average forecast of 0.722 percent in a Bloomberg News survey of six of the Fed’s primary dealers. The bid-to-cover ratio was 3.42, versus a 10-sale average of 3.27.
The U.S. will sell $16 billion of 30-year debt today to complete this week’s $70 billion in note and bond auctions. The sales will raise $9.2 billion of new cash, as maturing debt held by the public totals $60.8 billion, Treasury data show.
Yellen, in her first monetary-policy report to Congress since being sworn in as Fed chief last week, told the House Financial Services Committee on Feb. 11 that only a “notable change” in economic prospects would lead policy makers to slow the pace of reductions. Her testimony to the Senate Banking Committee, which was scheduled for today, was postponed.