U.S. 2-Year Notes May Yield 0.390% at Sale, Survey Says

The Treasury Department’s $31 billion sale of two-year notes may draw a yield of 0.390 percent, according to the average forecast in a Bloomberg News survey of six of the Federal Reserve’s 22 primary dealers.

The securities, which mature in May 2016, yielded 0.390 percent in pre-auction trading. Bids are due by 1 p.m. New York time. Last month’s sale of the notes yielded 0.447 percent. The record auction low was 0.220 percent in July 2012.

Today’s offering marks the first reduction in the size of the auction since October, after seven straight sales of $32 billion in two-year notes. 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 offering size peaked at $44 billion from October 2009 through April 2010.

The April 22 sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.35, versus 3.2 at the previous auction and matching the average ratio for the past 10 sales.

Indirect bidders, a class of investors that includes foreign central banks, bought 23.4 percent of the securities at the April sale, the least since December. The average at the past 10 auctions was 27.4 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 19 percent of the notes at the last offering, compared with an average of 23.5 percent at the past 10.

Note Returns

Two-year notes have returned 0.5 percent this year, compared with an advance of 3 percent by the broad Treasuries market, according to Bank of America Merrill Lynch indexes. The two-year securities gained 0.3 percent in 2013, while Treasuries fell 3.4 percent.

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

The coupon sales will raise $23.9 billion of new cash, as maturing securities held by the public total $71.1 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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