Treasuries Lure Global Buyers Even After Demand Wanes at Auction

Investors can’t get enough Treasuries.

Even after the U.S.’s sale of $13 billion of 30-year bonds drew the lowest demand in almost a year, global investors seeking higher paying U.S. securities came back to push yields down from session highs. The long bonds are headed for the biggest weekly rally since January, triggered by the European Central Bank’s sovereign-bond buying program started March 9 that has pushed yields in the region to historic lows.

“The story remains overseas investors,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, which manages $61 billion in assets. “The ECB continues to buy. The cash is finding its way overseas to the U.S.”

Thirty-year yields rose one basis point or 0.01 percentage point to 2.7 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. Yields have fallen 14 basis points this week, the most in a week since that ended Jan. 30. The 2.5 percent bond due in February 2045 fell 9/32, or $2.81 per $1,000 face amount, to 95 29/32.

Germany’s 30-year yield dropped to a record-low 0.606 percent. That expanded the yield difference between 30-year Treasuries and bunds to 197 basis points, the widest gap in data going back to 1994.

Benchmark 10-year Treasury yields fell one basis point to 2.11 percent and are down 13 basis points this week, also the biggest weekly decline since January.

Foreign Bid

The bonds sold Thursday drew a bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, of 2.18. That’s the lowest since May 2014 and down from an average at the past 10 auctions of 2.45.

The bond sale was rated a “2” by three of the Federal Reserve’s 22 primary dealers, the second-worst ranking on a scale of one to five.

While overall demand was soft, indirect bidders, a class of investors that includes foreign central banks, bought 51.9 percent of the bonds, the most since July and compared with an average of 47.5 percent at the past 10 offerings.

“The foreign bid was pretty good,” said Dan Mulholland, a trader at Credit Agricole CIB.

The U.S. also auctioned this week $24 billion each of three-year notes and 10-year notes, with both drawing above-average demand from indirect bidders.

Low Inflation

The 30-year yield had risen from a record low 2.22 percent Jan. 30, after the U.S. reported last month that jobs and wages increased more than forecast in January, spurring speculation the Fed will raise interest rates in the first half of the year.

Those odds dropped Thursday after an unexpected decline in retail sales prompted traders to question the timing of the Fed’s projection for an interest-rate increase later this year.

“There’s this general lack of inflation,” said Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets in New York. “Consumers aren’t spending money. That adds to investors appetite for longer-dated securities.”

Futures trading shows a 53 percent chance for an increase to 0.5 percent by September, according to Bloomberg data. That’s down from 56 percent odds a day ago.

(An earlier version of this article corrected the 30-year yield spread in the fifth paragraph.)

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