Treasury Sales Attract Least Demand Since October Amid Fed Taper

Demand for Treasuries at this week’s note and bond auctions fell to the lowest level since October as the Federal Reserve maintains its commitment to reduce securities-buying amid uneven economic data.

Investors bid 2.86 times the $70 billion in three-, 10- and 30-year debt sold, the least since October, as Fed Chairman Janet Yellen told U.S. lawmakers Feb. 11 only a “notable change” in the economic outlook would prompt a slowing in the pace of purchase reductions. U.S. employers added fewer-than-forecast jobs in January for a second month, data showed last week. A gauge of U.S. manufacturing fell more than projected.

“There’s some concern that the Fed is going to continue with the taper path even with less-than-stellar data,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors. “It looks as though Treasuries will start to grind higher in yield.”

The government auctioned $30 billion of three-year notes on Feb. 11, $24 billion of 10-year debt on Feb. 12 and $16 billion of 30-year bonds yesterday.

The three-year sale’s bid-to-cover ratio, which compares total bids with the amount offered, was 3.42, versus an average of 3.27 for the past 10 sales. The yield was 0.715 percent, compared with a forecast of 0.722 percent in a Bloomberg News poll of six of the Fed’s 22 primary dealers.

The 10-year note auction’s coverage ratio was 2.54, versus 2.68 at the January sale of the debt and an average of 2.65 for the past 10 sales. The securities yielded 2.795 percent, compared with a forecast of 2.797 percent in a Bloomberg News poll of eight primary dealers.

Long Bonds

Investors bid 2.27 times the amount of 30-year bonds offered, down from 2.57 times at the January auction and compared with an average of 2.40 times at the past 10 sales. The long bonds yielded 3.690 percent, versus a projection of 3.717 percent in a survey of nine primary dealers.

The Treasury has sold $260 billion of notes and bonds at auction this year, attracting three times the amount of bids to debt sold.

Investors bid 2.87 times the $2.14 trillion in coupon debt the government auctioned last year. The amount, which was down from a record 3.15 bid-to-cover ratio in 2012, was the fourth highest on record since the government began releasing data on auction bidding in 1994.

Gradual Withdrawal

The Fed said on Jan. 29 after a policy meeting it will hew to its plan for a gradual withdrawal from former Chairman Ben S. Bernanke’s unprecedented easing policy amid economic improvement. It cut its monthly bond purchases to $65 billion from $75 billion, after a $10 billion reduction approved in December from last year’s $85 billion.

Treasuries extended gains yesterday after the Commerce Department reported retail sales unexpectedly fell 0.4 percent as inclement weather kept consumers away from auto showrooms and stores, after a revised 0.1 percent decline the prior month. Economists surveyed by Bloomberg projected no change.

Initial claims for jobless benefits increased last week by 8,000 to 339,000 in the week ended Feb. 8, from 331,000 in the prior period, a Labor Department report showed. Economists in a Bloomberg poll called for a decrease to 330,000.

Benchmark 10-year note yields sank six basis points, or 0.06 percentage point, to 2.73 percent yesterday in New York. They touched 2.78 percent earlier in the day, the highest level since Jan. 29. The yields fell to a three-month low of 2.57 percent on Feb. 3 after climbing to as high as 3.05 percent on Jan. 1, the highest since July 2011.

The Bloomberg U.S. Treasury Bond Index has returned 1.3 percent since Dec. 31 after losing 3.4 percent in 2013.

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