Treasuries Advance as Note Auction Draws Best Demand Since 2014

  • Sale of seven-year securities rated 'outstanding' by dealers
  • Bonds gain as durable-goods orders fall by most in 10 months

Treasury seven-year notes rose, pushing yields to the lowest level since October, as an auction of the securities drew the highest demand since 2014, while a report showed orders for business equipment fell in December.

U.S. government bonds advanced as Commerce Department data showed orders for durable goods slumped in December by the most in 10 months, a day after the Federal Reserve said it expects to raise interest rates gradually. A group of investors that includes mutual funds and foreign central banks bought the most on record at the Treasury’s $29 billion seven-year note sale.

"This is a vote of confidence for the broader Treasury market because of the more cautious economic outlook by the Fed and the market," Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said about the auction.

Treasuries have gained 1.96 percent this month after a plunge in crude-oil prices and global stocks stoked concern that worldwide economic growth is slowing, luring investors to the relative safety of government debt. Oil touched a three-week high in New York.

Treasury seven-year note yields fell two basis points, or 0.02 percentage point, to 1.72 percent at 5 p.m. in New York, based on Bloomberg Bond Trader data. The price of the 2.125 percent security due in December 2022 rose 5/32, or $1.56 per $1,000 face amount, to 102 20/32.

Note Auction

The seven-year notes sold Thursday yielded 1.759 percent, down from 2.161 percent at the December sale and the lowest at an auction of the securities since January 2015. Indirect bidders bought 69.4 percent, the highest in data going back to 2009 and up from 47.1 percent in December.

The bid-to-cover ratio, which gauges demand, was 2.63, up from 2.34 at last month’s sale and the highest at an auction since November 2014. The sale was rated “outstanding” in a survey of four of the 22 primary dealers who trade with the Fed.

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