Bloomberg News

U.S. 10-year Yield Reaches 2% as Treasury Holds $24 Billion Sale

February 09, 2012

Feb. 8 (Bloomberg) -- Treasury 10-year note yields reached 2 percent for the first time in two weeks as the U.S. sold $24 billion of the securities.

Treasuries fluctuated as Greek officials worked to negotiate terms to unlock a 130 billion euro ($172.5 billion) rescue package. U.S. 30-year bond yields were little changed before tomorrow’s auction of $16 billion of the securities, completing $72 billion of note and bond sales this week.

“The auction went well, but the participation numbers were pretty average, so you can’t get too excited,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas Securities Corp., one of 21 primary dealers that trade with the Federal Reserve. “The U.S. market is being held captive to headlines out of Europe and that isn’t going to change any time soon.”

The yield on the current 10-year note was little changed at 1.98 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in November 2021 traded at 100 5/32. The yield touched 2 percent for the first time since Jan. 25.

Thirty-year bond yields were little changed at 3.15 percent after reaching as much as 3.18 percent.

Bid Details

The 10-year notes sold today drew a yield of 2.02 percent, compared with a forecast of 2.025 percent in a Bloomberg News survey of nine of the Fed Reserve’s primary dealers. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 3.05, the lowest since November. It was the second of three note and bond auctions totaling $72 billion this week.

Indirect bidders, a class of investors that includes foreign central banks, bought 38.9 percent of the notes at the offering, compared with the average for the past 10 offerings of 44.3 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 17.9 percent of the notes at the last sale, versus an average of 12 percent for the past 10 auctions.

The government is due to auction 30-year debt tomorrow after a $32 billion three-year note sale yesterday where primary dealers bought 63.8 percent of the offering, the largest proportion since January 2009. The three offerings will raise $22.4 billion of new cash, with maturing securities totaling $49.6 billion.

Risk Returns

Investors should hold stocks instead of bonds, according to Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager.

“You need to take on more risk,” Fink said on Bloomberg Television’s “First Up” with Susan Li in Hong Kong. Treasuries will have minimal returns with the Fed keeping interest rates low, he said. New York-based BlackRock oversees $3.51 trillion.

The U.S. central bank announced Jan. 25 that it will hold its target for overnight bank lending at virtually zero until at least late 2014. Fed Chairman Ben S. Bernanke said policy makers were considering buying bonds to sustain the expansion.

German Chancellor Angela Merkel’s government is readying plans for parliamentary votes on a bailout for Greece as soon as next week while Greek political leaders struggle for consensus on terms of the aid, the deputy floor leader of Merkel’s party said.

Greek Talks

Greece’s Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after he missed another deadline to secure a second aid package.

“The Greek story is still driving the market, and delays here and delays there just continue to add uncertainty, which is supporting Treasuries,” said Sean Murphy, a Treasury trader at Societe Generale SA in New York, one of the 21 primary dealers that trade with the Federal Reserve. “We should continue to hold the recent range as long as the uncertainty remains, which means the auction should go fine.”

The central bank is replacing $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs and spur the economy under a program it plans to conclude in June.

The Fed bought $1.8 billion of bonds due from February 2036 to May 2041 today, according to the New York Fed’s website. It also sold $8.6 billion of Treasuries maturing from June to November 2013.

The difference in yields between 10-year TIPS and 10-year Treasury notes, known as the break-even rate, which represents traders’ expectations for inflation over the life of the securities was 2.20 percentage points. The CPI is forecast to rise 2.1 percent this year, down from 3.2 percent in 2011, according to the median estimate of 66 economists surveyed by Bloomberg.

--Editors: Paul Cox, Dennis Fitzgerald

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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