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Treasury Auctions Five-Year Debt at Highest Yield Since 2011

Treasuries extended gains after the U.S. offering of $35 billion in five-year notes drew the highest yield in almost three years.

The sale’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.99, the highest since September 2012, compared with the 2.6 times average at the past 10 auctions. The notes yielded 1.715 percent, the highest since May 2011, compared with a forecast of 1.736 percent in a Bloomberg News survey of 10 of the Federal Reserve’s 22 primary dealers.

“It was a successful take-down of five-year supply,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It’s not a fundamental story. It’s the fact that rates backed up quite a ways, and that brought in a set of buyers.”

The yield on the current five-year note fell six basis points, or 0.06 percentage point, to 1.67 percent at 1:21 p.m. in New York, according to Bloomberg Bond Trader Prices. It touched 1.77 percent on March 24, the highest since January. The benchmark 10-year note yield decreased four basis points to 2.70 percent.

Indirect bidders, an investor class that includes foreign central banks, purchased 50.9 percent of the notes, highest since July, compared with an average of 45.3 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 23.1 percent, versus an average of 11.4 percent for the past 10 auctions.

Note Returns

The higher yield made it “a spectacular opportunity to add fives,” Michael Lorizio, senior trader at Manulife Asset Management in Boston, said before the auction.

Five-year notes have returned 0.7 percent this year, versus a gain of 1.5 percent by the broad Treasuries market, according to Bank of America Merrill Lynch indexes. The five-year securities lost 2.4 percent in 2013, while Treasuries overall fell 3.4 percent.

Today’s offering is the third of four auctions of coupon-bearing debt this week. The government sold $32 billion in fixed-rate two-year debt yesterday at a yield of 0.469 percent, the highest since May 2011. The Treasury auctioned $13 billion in two-year floating-rate notes at a high discount margin of 0.069 percent. Tomorrow, it will offer $29 billion in seven-year notes.

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