Treasuries Rise as Yields at Almost 3-Year High Fuel Sale Demand

Treasuries rose as three-year note yields at almost a three-year high supported demand at a U.S. auction of $27 billion of the securities.

The notes drew a yield of 0.992 percent, compared with a forecast of 0.998 percent in a Bloomberg News survey of nine of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.38, versus an average of 3.34 for the past 10 sales. Treasuries rose earlier as traders bet that declines after a stronger-than-forecast employment report last week were overdone amid an uneven economic recovery.

“The auction was reasonably strong,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The securities sold at relatively higher yields and it brought buyers in who were on the sidelines. The front end has been underperforming, and it’s catching up slowly.”

The current three-year note yield fell three basis points, or 0.03 percentage point, to 0.94 percent at 1:17 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 0.99 percent on June 18, the highest level since May 2011. The yield on the benchmark 10-year note dropped five basis points to 2.56 percent.

Bidder Participation

Indirect bidders, an investor class that includes foreign central banks, purchased 38.2 percent of the notes sold today, the highest level since February, compared with an average of 32.1 percent at the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 12.7 percent of the notes, the least since December, versus an average of 19.4 percent at the past 10 auctions.

The yield was the highest since May 2011.

Three-year notes have returned 0.4 percent this year, compared with a gain of 2.6 percent by the broader Treasuries market, according to Bank of America Merrill Lynch indexes. The three-year securities lost 0.1 percent in 2013, while Treasuries overall fell 3.4 percent.

Today’s offering is the first of three note and bond auctions this week totaling $61 billion. The government will sell $21 billion in 10-year debt tomorrow and $13 billion in 30-year securities on July 10.

Benchmark 10-year note yields reached a two-month high of 2.69 percent on July 3 after the U.S. Labor Department reported employers added 288,000 jobs in June, beating the forecast of 215,000 in a Bloomberg survey.

Investors have added to bets the Fed will raise the benchmark interest-rate target next year amid an improving economy. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among banks to have brought forward in the past week their estimated dates for the Fed’s first rate increase after holding the target at virtually zero since 2008.

Before it's here, it's on the Bloomberg Terminal.