Treasuries fell as the U.S. sold $13 billion of 30-year bonds at a record low yield and traders speculated whether global central banks will coordinate assistance if Greek elections increase financial-market turmoil.
Yields climbed after Reuters reported policy makers are preparing for unified action as they gather this weekend for a summit in Mexico, citing officials linked to the Group of 20 nations. Prices have swung between gains and losses as investors debated whether the refuge appeal of U.S. government debt outweighs buying with yields close to record lows.
“The market’s on eggshells here,” said Brian Edmonds, New York-based head of interest rates at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Federal Reserve. “It doesn’t take much to move the market either way.”
The yield on the 30-year bond increased three basis points, or 0.3 percentage point, to 2.74 percent at 5:13 p.m. New York time, according to Bloomberg Bond Trader Prices. The price of the 3 percent security maturing in May 2042 dropped 22/32, or $6.88 per 1,000 face amount, to 105 1/4. The yield climbed earlier as much as four basis points and fell one basis point. It touched a record low of 2.5089 percent on June 1.
The benchmark 10-year note yield rose five basis points to 1.64 percent. It touched a record low of 1.4387 percent June 1.
The long bonds sold today yielded 2.720 percent, versus a forecast of 2.725 percent in a Bloomberg News survey of eight of the Fed’s 21 primary dealers.
“It wasn’t the best auction we’ve seen,” said Dan Greenhaus, chief global strategist at the broker-dealer BTIG LLC in New York. “Yields are at extraordinarily low levels, and with equities pushing higher, we’re not surprised to see yields move a bit higher.”
The previous record low yield at a 30-year bond auction was 2.925 percent at the Dec. 14 sale. Last month’s sale drew a yield of 3.09 percent.
“We are in a low interest-rate environment for a longer period of time, and investors are now understanding that,” Wilmer Stith, a portfolio manager in a group that oversees $14 billion at Wilmington Trust Investment Managers in Baltimore, said in a telephone interview.
The auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.40, the lowest since November, versus an average of 2.66 at the past 10 sales.
Indirect bidders, an investor class that includes foreign central banks, purchased 32.5 percent of the bonds today, compared with 33.8 percent at the May sale and an average of 29.6 percent at the past 10 offerings. Direct bidders, non- primary dealer investors that place their bids directly with the Treasury, bought 24 percent, versus an average of 16.9 percent at the past 10 auctions.
Trading volume dropped. About $271 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, as of 5:01 p.m. in New York. Volume was $284 billion yesterday and $396 billion on May 31. The five-year average is $268 billion.
Primary-dealer holdings of U.S. government debt rose to a record $136.4 billion in the week ending June 6, from $100.1 billion in the week ended May 30. Holdings of coupons maturing in less than three years rose to a record $65.6 billion from $47.8 billion as the Fed sells shorter-term securities.
Treasuries pared losses earlier after data showed claims for jobless benefits in the U.S. unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated, Labor Department data showed. Economists in a Bloomberg News survey projected a decline to 375,000.
The cost of living in the U.S. fell in May by the most in more than three years as fuel prices retreated, buttressing Fed projections that cheaper commodities will help reduce inflation. The consumer-price index declined 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported.
“The recent data makes it less difficult for the Fed to do something as growth and inflation have been lackluster,” Stith of Wilmington Trust said. “The drumbeat is getting louder for more easing with weak data and the speed Europe is unraveling.”
U.S. stocks rose, with the Standard & Poor’s 500 Index advancing 1.1 percent.
Treasuries gained yesterday as Europe’s worsening debt crisis spurred investor demand for safety.
Moody’s Investors Service cut Spain’s credit rating yesterday by three steps to Baa3, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Greeks will vote again on June 17 after a May election failed to produce a coalition government.
“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Fed Chairman Ben S. Bernanke told lawmakers June 7. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”
The Fed opens a two-day policy meeting on June 19.
The central bank bought $2.3 trillion of bonds from December 2008 to June 2011 in two rounds of a tactic called quantitative easing, seeking to cap borrowing costs and stimulate the economy.
The U.S. sold $21 billion of 10-year notes yesterday at a record-low yield of 1.622 percent. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.06, versus 2.9 at the previous auction on May 9.
Today’s offering was the last of three Treasury note and bond auctions this week totaling $66 billion. The government sold $32 billion in three-year securities on June 12.
The Treasury said it will sell $7 billion in 30-year Treasury Inflation Protected Securities on June 21. The previous auction of the security on Feb. 16, a $9 billion offering, drew a record low yield of 0.77 percent.
The Fed purchased $2.04 billion of Treasuries today due from February 2036 to February 2042 as part of its Operation Twist program. The central bank is replacing $400 billion of shorter-term securities in its holdings with longer-term bonds through this month to keep borrowing costs down.
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