Treasuries Fall as Sale Draws Higher Than Forecast Yield

Treasuries fell for a third day as the government’s auction of $24 billion in 10-year notes drew higher-than-forecast yields amid signs the U.S. economic recovery is taking hold.

The notes yielded 2.046 percent, compared with a forecast of 2.039 percent in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.68, below the average of 2.96 for the past 10 sales. Government reports showed retail sales rose for a third consecutive month and import prices increased.

“Investors needed more yield to compensate them at auction,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “The market is playing ‘wait and see,’ but the market is still more vulnerable to higher yields given the economy.”

The yield on the current 10-year note rose five basis points, or 0.05 percentage point, to 2.03 percent at 5:02 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 1.625 percent security due in November 2022 fell 13/32, or $4.06 per $1,000 face value, to 96 15/32. The yield touched 2.058 percent on Feb. 4, the highest since April 12.

Indirect bidders, an investor class that includes foreign central banks, purchased 28 percent of the notes sold today, compared with 28.5 percent at the Jan. 9 auction and an average of 37 percent at the past 10 sales.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, bought 24.2 percent of the notes, compared with 14.8 percent at the previous auction and an average of 20.4 percent at the past 10 sales.

Treasury Losses

The government will sell $16 billion of 30-year bonds tomorrow. The U.S. auctioned $32 billion of three-year notes yesterday at a yield of 0.409 percent. Direct bidders purchased 26.9 percent of the three-year debt, the third consecutive record high.

“Today’s auction was OK, but the setup for tomorrow’s auction is weighing on the market,” said Thomas Simons, a government debt economist in New York at Jefferies Group Inc., one of primary dealers required to bid at the sales. “It’s the real point of interest this week and will give us clues of where and if investors see value in the long-end.”

Ten-year U.S. debt has lost 1.9 percent this year, according to Bank of America Merrill Lynch indexes, almost double the 1 percent loss in the broader Treasury market. The notes returned 4.2 percent in 2012, compared with a 2.2 percent gain by Treasuries overall.

Retail Sales

“There doesn’t seem like a lot of appetite to add Treasury risk as the economy trends better and bearishness slowly fades,” Ira Jersey, an interest-rate strategist in New York at primary dealer Credit Suisse Group AG, said before the sale. “There is decent reason to think that we are going to have growth that is good enough to keep us at or above 2 percent for a while.”

U.S. retail sales increased 0.1 percent last month, following a gain of 0.5 percent in December, Commerce Department figures showed today in Washington. The advance matched the median forecast in a Bloomberg survey.

Prices of goods imported into the U.S. rose 0.6 percent in January, led by more expensive fuel and building materials, Labor Department figures showed. Economists projected a 0.8 percent advance, according to another Bloomberg survey. $16 billion of 30-year bonds tomorrow.

“The retail sales number and import prices were positive for the economy and weakened the bond market,” Adrian Miller, director of fixed income strategies at GMP Securities LLC in New York, said in a telephone interview.

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