Treasury 10-Year Note Auction Demand Drops From Direct Bidders

The U.S. Treasury’s $21 billion 10-year note auction attracted the least demand from investors who place bids directly since January with the Federal Reserve preparing to raise borrowing costs next year.

The notes were sold at yield of 2.72 percent, compared with a forecast of 2.71 percent in a Bloomberg News survey of seven of the Fed’s 22 primary dealers. Direct bidders, non-primary-dealer buyers, purchased 15.2 percent of the securities, compared with an average of 18.1 percent at the past 10 auctions.

“Dealers wound up with more of the auction balances than their average over the last several auctions,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “Investors probably want to get more with respect to the Fed’s views on the pace of future interest-rate tightening.”

Fed policy makers at their March 18-19 meeting cut monthly bond purchases by $10 billion to $55 billion. Fed Chair Janet Yellen said the central bank may start to increase interest rates “around six months” after ending its asset buying.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.76, compared with an average of 2.64 for the previous 10 sales.

The previous 10-year note auction on March 12 produced a yield of 2.729 percent. Today’s sale is a re-opening of the 10-year note sold Feb. 12.

Auction Schedule

Indirect bidders, an investor class that includes foreign central banks, purchased 44.7 percent of the notes, compared with an average of 44.8 percent for the past 10 sales.

Today’s offering is the second of three note and bond sales this week. The U.S. sold $30 billion of three-year debt yesterday at a yield of 0.895 percent and will auction $13 billion of 30-year securities tomorrow.

Ten-year notes have gained 3.8 percent this year, compared with a 1.9 percent return in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The benchmark notes lost 7.8 percent in 2013, versus a 3.4 percent decline by Treasuries overall.

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