Treasury Yields Near Three-Month Highs Draw Buyers to Auction

  • U.S. sells $24 billion of 10-year notes maturing in 2025
  • Yield spread climbs on Treasuries relative to German bunds

Ten-year Treasuries yields hovered close to a three-month high, drawing investors to the U.S. government’s $24 billion auction of the maturity on Tuesday.

The offering drew a yield of 2.304 percent, below the 2.319 percent level that traders anticipated in a Bloomberg News survey. It was the first sale of the maturity since the Nov. 6 release of data showing surging U.S. job growth, which bolstered speculation that Federal Reserve policy makers will lift interest rates in December. U.S. yields reached the highest versus their German counterparts since May, raising the appeal of Treasuries to investors abroad.

"People are still dipping their toes," said Gennadiy Goldberg, a U.S. strategist at TD Securities, one of the 22 primary dealers that trade with the Fed. "The strength of the bid here does tell you that there’s still quite a bit of demand for Treasuries."

Ten-year yields were little changed at 2.34 percent as of 5 p.m. in New York, after reaching the highest since July 21 on Monday, according to Bloomberg Bond Trader data. The price of the 2 percent Treasury maturing in August 2025 was 97.

Yields surged in the past two weeks after Fed officials signaled last month that they’re assessing whether to lift their benchmark in December from near zero, where it’s been since 2008. The selloff cheapened Treasuries relative to other sovereign debt markets where central banks are signaling plans to add monetary stimulus.

Yields on benchmark U.S. 10-year notes exceeded those on similar-maturity German bunds by 172 basis points, the largest difference since early May.

"You’re getting international demand because U.S. yields on a real and nominal basis are much higher than what you’d get in the rest of the world," Aaron Kohli, a fixed-income strategist in New York for Bank of Montreal, a primary dealer, said in an interview before the auction.

In a sign of overseas appetite for the 10-year sale, indirect bidders, a group that includes foreign central banks, bought 60.5 percent of the amount sold, compared with an average of 58.3 percent at the past 10 offerings.

The auction result suggests “solid demand” for Thursday’s offering of $16 billion of 30-year bonds, Kohli wrote in a note.

The auction’s yield was up from 2.066 percent at the previous sale on Oct. 7. The U.S. also sold $12 billion of 52-week bills and a record $52 billion in four-week bills Tuesday.

Futures contracts signal a 66 percent chance that Fed officials will raise their target rate by year-end. The next policy announcement is scheduled for Dec. 16. The calculations assume the rate will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

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