Treasuries Fall as Yields Near 6-Week Lows Damp Auction DemandAlexandra Scaggs
An auction of Treasury five-year notes showed the limits to investors’ appetite for U.S. government debt.
With yields reaching six-week lows, the $35 billion sale attracted the least demand since July 2009. That weighed down Treasury prices even as the stock market, a riskier asset class, sold off. The note auction followed gains in Treasury prices during the past week after Federal Reserve policy makers cut their forecasts for interest rates and economic growth.
“It tells you people aren’t willing to pay just any price, simply because there are Treasuries out there,” said Jim Vogel, interest-rate strategist for FTN Capital Markets in Memphis, Tennessee.
Current five-year note yields rose five basis points, or 0.05 percentage point, to 1.42 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The yield reached 1.34 percent earlier, the lowest level since Feb. 6.
Benchmark 10-year yields added five basis points to 1.93 percent. Treasuries of all maturities have returned 0.9 percent this month and 2 percent this year, according to the Bloomberg U.S. Treasury Bond Index.
The five-year auction’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.35, below the average of 2.63 from the past 10 auctions.
The notes sold Wednesday at a yield of 1.387 percent, compared with a 1.377 percent average forecast in a Bloomberg survey of six of the Fed’s 22 primary dealers.
U.S. yields fell earlier after a report showed orders for durable goods unexpectedly dropped in February. Yields have declined in the past week after the Fed lowered forecasts for the funds rate as inflation has remained persistently below the central bank’s 2 percent target.
“With the strength we saw early in the market on durable goods, people thought, oh we can handle something in the mid-1.30s” for the five-year sale’s yield, FTN’s Vogel said. “It wasn’t bad given the size of the rally” in morning trading, he said, while “keeping things in perspective, it was a very disappointing auction in terms of the way you measure a sale.”
Indirect bidders, a class of investors that includes foreign central banks, bought 55.7 percent of the notes, compared with the average 54 percent this year. Treasury coupon auctions this year totaling $499 billion of securities have attracted 2.89 times the amount debt sold, compared with 2.98 last year.
Demand was higher than average Tuesday when the U.S. sold $26 billion in two-year notes at a yield of 0.598 percent. It will offer $29 billion in seven-year notes Thursday.
“The two-year is an easier way to park some cash, while you’re waiting for things to develop, which is what a lot of people are doing here,” said Larry Milstein, managing director of government-debt trading at R.W. Pressprich & Co. in New York. “There’s been a lot of chatter about Fed members wanting to hike this year, but economic data hasn’t really indicated that they need to start tightening.”
Fed Bank of Chicago President Charles Evans, a voting member of the policy-setting committee, said inflation remains too low to justify an interest-rate increase this year. His comments in London Wednesday provided backup to the view that the central bank won’t rush to raise borrowing costs.
Fed officials have noted the rallying dollar is creating a drag on economy. Bookings for goods meant to last at least three years declined 1.4 percent, compared with a forecast of 0.2 percent growth in a Bloomberg survey.