Treasury 10-Year Note Sale Demand Increases Amid Feeble Growth

Yields at almost a one-year low failed to damp demand at the Treasury’s $24 billion 10-year note sale as data showing tepid retail-sales growth added to signs the U.S. economy is struggling to gain momentum.

The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.83 at the auction yesterday, versus 2.57 at last month’s sale and an average of 2.69 at the past 10 offerings. The notes sold at a yield of 2.439 percent, compared with a forecast of 2.435 percent in a Bloomberg News survey of six of the Fed’s 22 primary dealers.

“It was a fairly good auction,” said Thomas di Galoma, head of fixed income rates at ED&F Man Capital Markets in New York. “There’s a lot of headwinds in the economy still. People are leaning more into Treasuries again because the Federal Reserve’s not going to be raising rates for a year, and you still have these geopolitical concerns.”

The benchmark 10-year note yield fell three basis points, or 0.03 percentage point, to 2.42 percent yesterday in New York, according to Bloomberg Bond Trader prices. The yield touched 2.35 percent on Aug. 8, the lowest since June 20, 2013.

The yield on the 30-year bond decreased three basis points to 3.24 percent before the U.S. sells $16 billion of the debt today.

Treasuries climbed before the auction as the Commerce Department reported retail sales were little changed in July amid feeble wage growth, adding to speculation the world’s biggest economy will struggle to gain momentum.

Rate Speculation

The likelihood the central bank will boost its benchmark interest-rate target from virtually zero declined to 36 percent, from 51 percent on July 31, futures trading showed. The rate has been held steady since 2008 to support the economy.

Government bonds have gained this month as conflicts in Ukraine, Iraq and Gaza stoked investor demand for safety.

At the auction, indirect bidders, a class of investors that includes foreign central banks, bought 47 percent of the notes, versus 39.6 percent in July. The average at the past 10 offerings was 44.5 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 15.1 percent, versus 13.9 percent of the securities at last month’s sale. The average at the past 10 auctions was 17.8 percent.

The auction yield was the lowest since the June 2013 sale’s 2.209 percent.

Note Returns

Ten-year notes have gained 7.1 percent this year, compared with a 3.6 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.

Yesterday’s offering was the second of three note and bond sales this week totaling $67 billion. The U.S. sold $27 billion of three-year debt on Aug. 12 at a yield of 0.924 percent.

The sales will raise $9.3 billion of new cash, as maturing securities held by the public total $57.7 billion, according to the U.S. Treasury.

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