Treasury 5-Year Note Sale May Yield Most Since 2011, Survey Says

The Treasury Department’s $35 billion sale of five-year notes may draw a yield of 1.736 percent, the most since May 2011, according to the average forecast in a Bloomberg News survey of 10 of the Federal Reserve’s 22 primary dealers.

The securities, which mature in March 2019, yielded 1.735 percent in pre-auction trading. Bids are due by 1 p.m. New York time. Last month’s sale of the notes yielded 1.530 percent. The size of today’s offering is the same as the past 42 auctions of five-year notes after peaking at $42 billion from November 2009 through April 2010.

The Feb. 26 offering’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.98, the most since September 2012 and compared with an average of 2.6 at the past 10 auctions.

Indirect bidders, a class of investor that includes foreign central banks, bought 50.7 percent of the notes at the February sale, the most since July and compared with the average of 45.3 percent at the past 10 offerings.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 9.2 percent of the notes at the last sale, compared with an average of 11.4 percent at the past 10.

Five-year notes have returned 0.7 percent this year, versus a gain of 1.5 percent by the broad Treasuries market, according to Bank of America Merrill Lynch indexes. The five-year securities lost 2.4 percent in 2013, while Treasuries overall fell 3.4 percent.

Four Auctions

Today’s offering is the third of four auctions of coupon-bearing debt this week. The government auctioned $32 billion in fixed-rate two-year debt yesterday at a yield of 0.469 percent, the highest since May 2011. The Treasury sold $13 billion in two-year floating-rate notes at a high discount margin of 0.069 percent. Tomorrow, it will offer $29 billion in seven-year notes.

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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