Treasury 2-Year Note Sale May Yield Most Since 2011, Survey Says

The Treasury Department’s $32 billion sale of two-year notes may draw a yield of 0.471 percent, the most since May 2011, according to the average forecast in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers.

The securities, which mature in March 2016, yielded 0.47 percent in pre-auction trading. Bids are due by 1 p.m. New York time. Last month’s sale of the notes yielded 0.340 percent, and the record auction low was 0.220 percent on July 24, 2012. The Treasury sold two-year securities at a yield of 0.56 percent in May 2011.

Today’s offering is the sixth straight two-year note auction of its size. The Treasury sold $35 billion of the securities at monthly offerings from October 2010 through July. It lowered the amount to $34 billion in August, cut it to $33 billion in September and reduced it by another $1 billion in October. The amount peaked at $44 billion from October 2009 through April 2010.

The Feb. 25 offering’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.60, compared with 3.3 at the previous auction, which matched the average ratio for the past 10 auctions.

Indirect bidders, a class of investors that includes foreign central banks, bought 34.3 percent of the securities at the February sale. The average at the past 10 auctions was 26.7 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 19.3 percent of the notes at the last offering, compared with an average of 21.5 percent at the past 10.

Note Returns

Two-year notes have returned 0.07 percent this year, compared with a gain of 1.5 percent by the broad Treasuries market, according to Bank of America Merrill Lynch indexes. The two-year securities climbed 0.3 percent in 2013, while Treasuries fell 3.4 percent.

Today’s offering is the first of four auctions of coupon-bearing debt this week. The Treasury will sell $13 billion in two-year floating-rate notes and $35 billion five-year securities tomorrow, and $29 billion of seven-year notes the next day.

When added to a $13 billion sale of 10-year Treasury Inflation Protected Securities on March 20, the auctions total $122 billion. They will raise $50.6 billion of new cash, as maturing securities held by the public total $71.4 billion, according to the U.S. Treasury.

The Fed’s primary dealers trade government securities with the central bank and are obligated to bid in Treasury auctions.

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