Treasuries rose, with 10-year note yields touching a one-month low, as a renewal of financial stress in European financial markets sent investors to the safety of U.S. government securities.
U.S. debt pared gains as the Treasury sold $13 billion of 30-year bonds at a yield of 3.369 percent, the lowest auction yield since June 2013, and compared with a forecast of 3.372 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers. Treasuries gained as Portuguese bonds tumbled with investor concern deepening due to missed debt payments by a company linked to the Iberian nation’s second-largest bank.
“The market blew past these auctions, and continues to hold a bid with global equities weaker,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “I see no reason in the short term why yields would bounce higher without serious inflation pressures.”
The benchmark 10-year yield declined one basis point, or 0.01 percentage point, to 2.54 percent at 4:59 p.m. New York time, after reaching 2.49 percent, the lowest since June 2, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in May 2024 rose 1/8, or $1.25 per $1,000 face amount, to 99 21/32.
The yield on the current 30-year bond fell one basis point, to 3.37 percent.
The amount of Treasuries traded through Icap Plc, the largest inter-dealer broker of U.S. government debt, dropped to $349 billion. It rose to $379 billion yesterday, the most since June 19. The daily average volume this year is $333 billion.
The 10-year note yield will rise to 3 percent by year-end, according to the median forecast of economists and strategists in a Bloomberg News survey conducted July 3 to July 9, down from a prediction of 3.4 percent in a January survey.
The auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.40, equaling the average for the past 10 sales.
Indirect bidders, an investor class that includes foreign central banks, purchased 53.2 percent of the bonds, the highest since February 2006 and compared with an average of 42.5 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 11.1 percent of the bonds, compared with an average of 16.6 percent at the last 10 auctions.
“Indirects infer outright demand for this kind of paper, for the long end of the curve,” said Gabriel Mann, a U.S. government-bond strategist in Stamford, Connecticut at Royal Bank of Scotland Plc’s RBS Securities unit, a primary dealer. “At the same time, it was on the softer side. It was a mixed auction.” The yield curve refers to the difference in yields between different maturities.
Long bonds have returned 13.4 percent this year, the most since 2010, according to Bank of America Merrill Lynch index data. That compared with a gain of 3 percent in the broader U.S. Treasuries market this year. Long bonds lost 15.1 percent in 2013, versus a 3.4 percent decline by Treasuries overall.
The auction was the final of three note and bond offerings this week. The U.S. sold $27 billion of three-year debt on July 8 at a yield of 0.992 percent and auctioned $21 billion of 10-year debt yesterday at a yield of 2.597 percent.
The sales will raise $5.1 billion of new cash, as maturing securities held by the public total $55.9 billion, according to the U.S. Treasury.
Portugal’s central bank said Banco Espirito Santo SA, the nation’s second-largest lender, is protected after its parent missed debt payments. Moody’s Investors Service downgraded a company in the group citing a lack of transparency and links to other companies.
“The brewing crisis in Europe has brought demand into the market, as a part of a broader flight to quality that is benefiting 30-year bonds, even with the lowest yields in some time,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, before the auction.
U.S. bonds were also underpinned by the release yesterday of minutes of the Fed’s June meeting, which eased concern that plans for higher borrowing costs will be brought forward.
Minutes showed officials have moved closer to deciding on the main tool they will use to tighten monetary policy when the time comes, most likely next year, and agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the officials said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.
Fed Chair Janet Yellen is scheduled to testify before the Senate Banking Committee on July 15 and the House Committee on Financial Services the following day.