U.S. 10-Year Demand at 21-Month High as Inflation Outlook Ebbs

The Treasury’s $21 billion 10-year note auction received the highest demand since March 2013 as investors’ global-growth concern accelerated and a collapse in crude-oil prices depressed inflation expectations.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.97 at yesterday’s offering, versus an average of 2.69 at the past 10 sales. The notes sold at a yield of 2.214 percent, the lowest at an auction of the maturity since June 2013.

“Everything is supporting U.S. yields,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., one of 22 primary dealers that are obligated to bid at Treasury debt auctions. “A lot of the demand was foreign-driven. It is flight to quality, it is global-deflation concerns.”

The auction was rated a “3” by five primary dealers on a scale of one through five, with one being a failed auction. A three denotes an average sale.

The government will sell $13 billion of 30-year bonds today. It auctioned $25 billion of three-year notes on Dec. 9 at a yield of 1.066 percent.

The Organization of Petroleum Exporting Countries cut the forecast yesterday for how much crude oil it will need to provide in 2015 to the lowest level in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption. Crude-oil futures slid as much as 5.3 percent to $60.43 a barrel in New York, the lowest since July 2009.


Traders’ outlook for inflation over the next 10 years was at almost the lowest since 2010, as measured by Treasury Inflation Protected Securities. The difference between yields on 10-year notes and non-indexed U.S. government debt of comparable maturity, an indication of consumer prices called the break-even rate, fell to 1.71 percentage points.

At the auction, indirect bidders, an investor class that includes foreign central banks, purchased 53.8 percent of the notes sold, the most since December 2011, compared with an average of 45.2 percent at the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 6.9 percent, compared with an average of 16.2 percent at the past 10 auctions.

Investors have bid three times the $2.077 trillion of notes and bonds the Treasury has sold this year, according to Treasury data compiled by Bloomberg. That compares with a ratio of 2.87 times last year, which was the fourth highest since the Treasury began releasing bidding data in 1994. The record of auction demand is 3.14 times, which was set in 2012.

“There has been this persistently good demand for long-end paper,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, a primary dealer.

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