Sept. 28 (Bloomberg) -- The Treasury sold $35 billion of five-year notes at a record low yield as investors continued to seek refuge from the European sovereign-debt crisis.
U.S. debt securities pared losses as the auction drew the highest demand in four months and stocks fell. A $35 billion sale of two-year notes yesterday drew the highest demand in a year. Government bonds fell earlier today as orders for U.S. durable goods dropped in August less than economists forecast.
“There was real interest at the yield levels,” David Ader, head of government bond strategy in Stamford, Connecticut, at CRT Capital Group LLC, said of the five-year note offering. “It was value that brought people in, not new or exacerbated fears. We’ve had a very good back-up in the five-year sector over the course of the day. They had got cheap on the curve and on an outright basis.”
Yields on 10-year notes increased less than one basis point, or 0.01 percentage point, to 1.98 percent at 5:07 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities maturing in August 2021 slid 2/32, or 63 cents per $1,000 face amount, to 101 9/32. The yields earlier today rose nine basis points to 2.06 percent.
The Standard & Poor’s 500 Index dropped for the first time in four days, falling 2.1 percent. Crude oil for November delivery slid 4.4 percent to $80.76 a barrel.
At today’s auction, the five-year notes drew a yield of 1.015 percent, compared with the previous record of 1.029 percent at the Aug. 24 offering. The average forecast in a Bloomberg News survey of eight of the Federal Reserve’s primary dealers was 1.023 percent.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.04, the highest level since the May auction. The average for the previous 10 sales is 2.76.
Indirect bidders, an investor class that includes foreign central banks, purchased 45.9 percent of the notes, compared with 42.1 percent last month and an average of 39.2 percent for the past 10 sales.
Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 13.8 percent of the notes, versus 13.9 in August and an average of 10.9 percent at the past 10 auctions.
Yields on current five-year notes fell almost one basis point to 0.94 percent after rising seven basis points to 1.01 percent before the auction. Yields on 30-year bonds were little changed at 3.07 percent after rising for three straight days.
‘Hard to Resist’
“We cheapened up to a place that was too hard to resist,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, which as one of the Fed’s 20 primary dealers is obliged to participate in U.S. debt offerings. “Clearly it was a strong auction.”
Today’s offering is the second of three note sales totaling $99 billion this week. At yesterday’s two-year note auction, the securities drew a yield of 0.249 percent, compared with a record low auction yield of 0.222 percent on Aug. 23. The bid-to-cover ratio was 3.76, the highest since the September 2010 offering.
Treasuries have rallied this quarter on demand for a refuge from Europe’s debt crisis and a stalled American economy. U.S. debt securities have returned 5.8 percent in the third quarter, the most since the depths of the financial crisis in the fourth quarter of 2008, according to Bank of America Merrill Lynch indexes. They have gained 1.1 percent in September.
Fed Debt Buying
Yields on 30-year bonds fell last week the most in almost three years and two-year note yields increased after the Fed announced on Sept. 21 it would buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less to support growth under what is known as Operation Twist.
Treasuries dropped earlier today after the Commerce Department reported that orders for U.S. durable goods decreased 0.1 percent in August after a 4.1 percent gain in the previous month. The median forecast of 77 economists in a Bloomberg News survey was for a 0.2 percent decrease.
European Commission President Jose Barroso called for the faster creation of a permanent-rescue fund and appealed to central bankers to use their powers as the ultimate line of defense against the debt crisis.
The European Stability Mechanism, due to begin in mid-2013, will wield a 500 billion-euro ($681 billion) fund that may be used more flexibly than the current guarantee-based temporary financial backstop.
Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility, the European Securities and Markets Authority announced in an e- mailed statement.
“Europe continues to be the main driver of U.S. markets,” said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, a brokerage for institutional investors.
--Editors: Dennis Fitzgerald, Paul Cox
To contact the reporters on this story: Susanne Walker in New York at email@example.com; Cordell Eddings in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Dave Liedtka at email@example.com