Bloomberg News

Treasury 30-Year Falls as Sale Draws Lower Than Average Demand

January 12, 2012

Jan. 12 (Bloomberg) -- Treasury 30-year bonds fell for the first time in three days as the government’s sale of $13 billion of the securities was met by lower-than-average demand after record-setting auctions the prior two days.

The 30-year offering’s bid-to-cover ratio, which gauges demand comparing total bids with the amount of securities offered, was 2.6, versus an average of 2.7 in the previous 10 sales. Yesterday’s 10-year note auction set a record low yield, while the three-year sale on Jan. 10 drew a record high bid-to- cover ratio. Treasuries fell earlier as Spain and Italy sold debt at lower costs.

“The market rallied fairly well into today, but now the market is trying to digest the supply,” said James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., one of 21 primary dealers required to bid in U.S. Treasury auctions. “There is still risk aversion, but yields are too low for the market right now given the atmosphere.”

The yield on the current 30-year bond rose one basis point, or 0.01 percentage point, to 2.97 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent security due in November 2041 fell 5/32, or $1.56 per $1,000 face amount, to 103 1/32. Ten-year yields rose two basis points to 1.92 percent.

“The auction was fairly weak,” said Brett Rose, an interest-rate strategist in New York at Citigroup Inc., another primary dealer. “It’s clear that investors are less comfortable with these yield levels.”

Foreign Bidders

At today’s auction, indirect bidders, an investor class that includes foreign central banks, purchased 31.9 percent of the securities, compared with 32.5 percent at the December sale, and an average of 33.8 percent at the past 10 offerings. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 7.2 percent, versus an average of 16 percent for the past 10 auctions.

Among those disappointed with the auction was the man who runs the world’s biggest bond fund.

“Putrid long-bond auction,” Bill Gross, who manages Pacific Investment Management Co.’s $244 billion Total Return Fund, wrote in a twitter message. “Shows that the only investor that wants 30-yr Treasuries is the Fed.”

Demand for Treasuries as a haven pushed debt due in 10 years or longer up 30 percent in the past 12 months, the most among 144 government-bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries returned 9.8 percent last year, the biggest gain in a year since 2008, according to Bank of America Merrill Lynch indexes.

Spain, Italy

Spain sold 9.98 billion euros ($12.7 billion) of bonds today, almost twice the maximum target of 5 billion euros set for the sale. The yield on the three-year notes was 3.384 percent, compared with 5.187 percent when the nation sold similar securities in December. Italy sold 12 billion euros of bills at 2.735 percent, down from 5.952 percent at the last auction.

ECB policy makers meeting in Frankfurt kept the benchmark interest rate at a record low 1 percent, as predicted by 47 of 53 economists surveyed by Bloomberg News.

Volatility in the Treasury market touched its lowest level in almost seven months. Bank of America Merrill Lynch’s MOVE index, which measure price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, dropped to 78.20 yesterday, the lowest level since June 13. The 2011 average was 94.1, with a high of 117.8 on Aug. 8 and a low of 71.5 on May 31.

Record Low Yield

This week’s offerings of note and bond auctions raised $30.5 billion of new cash as $35.5 billion of maturing securities are held by the public, according to Treasury Department data.

The $21 billion sale of 10-year notes yesterday was sold at a record low yield of 1.90 percent amid speculation France may lose its top credit rating. The bid-to-cover ratio was 3.29, versus an average of 3.11 for the past 10 auctions. The government attracted record demand at its $32 billion sale of three-year notes on Jan. 10. That auction’s bid-to-cover ratio was 3.73, the highest since at least 1993, when the government began releasing the data.

Yields dropped earlier after reports showing a slowdown in retail sales and a rise in jobless claims renewed concerns economic growth is stalling.

Retail Sales

Sales at U.S. retailers in December rose 0.1 percent, restrained by cheaper fuel prices and holiday discounting that helped hold down the value of goods sold. The gain followed a 0.4 percent advance in November that was more than initially reported, Commerce Department figures showed today. Economists forecast a 0.3 percent December rise, according to the median estimate in a Bloomberg News survey. Purchases excluding automobiles fell 0.2 percent.

Jobless claims climbed by 24,000 to 399,000 in the week ended Jan. 7, Labor Department figures showed today in Washington. The median forecast of 46 economists in a Bloomberg News survey projected 375,000. The number of people on unemployment benefit rolls rose, while those receiving extended payments decreased.

“The numbers disappoint,” said Steven Ricchiuto, chief economist in New York at Mizuho Securities USA. “The Treasury market is saying we may be getting a better situation from overseas, but we’re not out of the woods here yet. So there’s no reason to be selling Treasuries.”

--Editors: Kenneth Pringle, Greg Storey

To contact the reporters on this story: Cordell Eddings in New York at; Susanne Walker in New York at

To contact the editor responsible for this story: Dave Liedtka at

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