Treasuries Remain Higher After $29 Billion 7-Year Note Auction

Treasury seven-year notes remained higher after the U.S. sale of $29 billion of the securities before the Federal Reserve’s decision on monetary policy.

The notes drew a yield of 1.87 percent, the same as the forecast in a Bloomberg News survey of seven of the Fed’s primary dealers and the lowest since May. Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased the highest percentage on record. Treasuries rose earlier after U.S. companies added the fewest workers this month since April and inflation in September rose the least in five months.

“It was another strong auction -- it came right on the screws,” Said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “It looks like the Fed will be leaning dovish today and that propels the market to lower yields over the near term. I don’t think the Fed’s going to disappoint with tapering or some kind of hawkish statement.”

The yield on the current seven-year note fell four basis points, or 0.04 percentage point, to 1.84 percent at 1:25 p.m. in New York, according to Bloomberg Bond Trader Prices, the lowest level since June 21.

The yield on the benchmark 10-year note fell three basis points to 2.48 percent.

Fed policy makers end a two-day meeting today at which they will maintain monthly asset purchases at $85 billion, according to a Bloomberg News survey of economists.

Bidder Participation

Direct bidders purchased 23.9 percent of the notes, compared with an average of 19.3 percent at the last 10 auctions. The previous high was Dec. 21, 2012.

Indirect bidders, an investor class that includes foreign central banks, purchased 42.3 percent of the notes, compared with an average of 40.5 percent for the past 10 sales.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.66, the highest since May and compared with an average of 2.6 for the previous 10 sales.

Primary dealers bought 33.8 of the securities, the lowest since December 2010

Seven-year notes have lost 2.2 percent this year, versus a drop of 1.8 percent for Treasuries overall, according to Bank of America Merrill Lynch indexes. The seven-year securities returned 3.9 percent in 2012, while Treasuries overall gained 2.2 percent.

Strong Demand

Today’s offering was the last of three note auctions this week totaling $96 billion. The government sold $32 billion in two-year debt on Oct. 28 and $35 billion in five-year securities yesterday at the lowest yields since May.

Investors bid $2.87 for each dollar of the $1.785 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 bid-to-cover ratio at the October auctions of 2.85 times was the highest since May, and has risen for two consecutive months for the first time since the September-October period a year ago.

The $167 billion of notes and bonds was the fewest sold by the Treasury at auction in a month since it sold $165 billion of debt in December 2010.

Before it's here, it's on the Bloomberg Terminal.