Treasury Note Auctions Lure Foreign Buyers Amid Higher Yields

The Treasury’s sales of $91 billion in fixed-coupon notes this week attracted above-average demand from a group of investors that includes foreign central banks, lured by the highest yields among Group-of-Seven nations.

Indirect bidders purchased 56.5 percent of the $29 billion in seven-year notes sold today, the most since December 2010, versus an average of 45.5 percent at the previous 10 sales. The class of investors also secured above-average amounts of the $35 billion of five-year notes sold yesterday and the $27 billion of two-year debt sold the day before.

“U.S. securities will continue to be in demand by foreign investors, given the relative advantage currently that it provides versus the rest of the developed-market bonds,” said Christopher Sullivan, who oversees $2.4 billion as chief investment officer at United Nations Federal Credit Union in New York.

U.S. 10-year notes yielded as much as 1.03 percentage points more than the average of their G-7 peers today, the widest since November 2006.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.39 at the seven-year note auction, below the 2014 average of 2.72. This year’s average is the highest since 2012, above the ratio last year of 2.65, according to data compiled by Bloomberg.

The seven-year auction drew a yield of 2.125 percent, compared with an average forecast of 2.120 percent in a Bloomberg survey of five of the Federal Reserve’s 22 primary dealers.

The coverage ratio on the $2.21 trillion of notes and bonds sold this year averaged 2.98, according to data compiled by Bloomberg.

Average Ratings

All three of the auctions this week earned ratings of “3” in surveys of primary dealers as the central bank prepares to raise interest rates next year. The rating, on a scale of one to five with one characterizing a failed auction, denotes an average sale.

The Treasury also auctioned $13 billion of two-year floating-rate notes yesterday.

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