Treasury Auction Demand Most Since December as Fed Concern EasesCordell Eddings and Daniel Kruger
Demand for Treasuries at this week’s note and bond auctions was the highest since December, with the Federal Reserve playing down predictions by some of its own policy makers for higher interest rates.
Bids for the $64 billion of fixed-rate securities equaled
2.99 times the amount of debt sold, the most demand since the same three maturities were sold four months earlier. Yesterday’s $13 billion 30-year bond auction capped the week, drawing the lowest yield since June, and a bid-to-cover ratio of 2.52, compared with an average of 2.36 for the previous 10 bond auctions.
Minutes of the Fed’s March policy meeting released two days ago stated that several participants noted that the increase in the median projection overstated the shift in the projections. At the same time, some members expressed concern that the rate forecasts could be misconstrued as indicating a move by the committee to be less accommodative.
“The minutes gave some relief to the market that there really isn’t a preset course for tightening and that there is still debate, which was reassuring,” said William Marshall, an interest-rate strategist at Credit Suisse Group AG in New York, one of 22 primary dealers that bid at U.S. debt sales. “Before we get a move higher in rates, there is a need for the economic backdrop to fundamentally support that outlook, and we haven’t seen that yet.”
The bond sale followed auctions of $30 billion of three-year notes on April 8 at a yield of 0.895 percent and $21 billion of 10-year securities the day after at 2.72 percent. The bonds yielded 3.525 percent.
The three-year notes had a bid-to-cover ratio of 3.36, versus an average of 3.29 for the past 10 sales. The 10-year note’s coverage ratio was 2.92, versus 2.54 at the February sale of the debt and an average of 2.62 for the past 10 sales.
Treasury yields surged on March 19 after Fed Chair Janet Yellen suggested policy makers may begin raising interest rates by the middle of next year.
“The Fed affirmed the views that the market had overly interpreted the hawkishness and the mood of the market has shifted,” said Aaron Kohli, an interest-rate strategist at BNP Paribas SA in New York, a primary dealer. “With inflation low and the Fed’s tone more accommodative, it provides a strong backdrop for 30-year bonds.”
Thirty-year bonds have returned 8.1 percent this year, compared with a 1.9 percent gain in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. Long bonds lost 15.1 percent in 2013, versus a 3.4 percent decline by Treasuries overall.
Investors have bid for 3.06 times the $628 billion of notes and bonds sold by the Treasury this year, compared with 2.87 times for the $2.14 trillion sold last year. The record for demand at auctions is 3.15 set in 2012 when the Treasury sold $2.153 trillion of notes and bonds.