Treasury Floaters Demand Eases as Dealers Win Larger Sale Share

The Treasury’s $13 billion floating-rate note sale, the second ever for the security, drew lower demand than last month’s offering, with primary dealers purchasing a greater percentage of the securities.

Primary dealers, who are obligated to bid in Treasury auctions, purchased 54.6 percent of the notes, compared with 53.2 percent on Jan. 29. The notes were sold at a high discount margin of 0.064 percent, the Treasury Department said after the auction, up from the 0.045 percent at the inaugural auction.

The bid-to-cover ratio, which gauges demand by comparing the amount of bids with the amount of securities offered, was 5.29, down from 5.67. The January sale was the first new Treasury debt security sold in 17 years. Because they’re benchmarked to a short-term security, the notes are considered an alternative to bills.

“Second auctions are usually weaker than the first, and that considered, this auction was pretty good and almost a carbon copy,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the Federal Reserve’s 22 primary dealers. “The Treasury should be happy with how these are going. The fact that these weren’t abandoned and that demand was so similar to last month is encouraging. There is a market developing for these.”

New Security

The last time the Treasury introduced a new security was in January 1997, when $7 billion of 10-year inflation-indexed notes attracted a bid-to-cover ratio of 5.31.

Indirect bidders, a class of investor that includes foreign central banks, bought 39.7 percent of the floating-rate notes, up from 37.8 percent at the at the January sale.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 5.7 percent of the sale, compared to 8.9 percent of the last auction.

Investors have bid 3.14 times the $314 billion of Treasury notes and bonds sold by the government so far this year. If the $28 billion of the floating-rate notes sold in January and February were excluded, the bid-to-cover ratio would be 2.91, compared with 2.87 for all of 2013, Treasury data compiled by Bloomberg show.

The Treasury plans to sell more floating-rate notes in April, July and October, with two reopenings in the subsequent months of each quarter.

“Interest is still in the process of picking up,” said Marc Fovinci, head of fixed income in Portland, Oregon, at Ferguson Wellman Capital Management Inc., which has $3.5 billion in assets. “Right now we’ve seen modest interest from clients, but the securities are trading well.”

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