Bloomberg News

Treasuries Pare Loss as Haven Appeal Bolsters Demand at Auction

June 26, 2012

Treasuries pared losses as the refuge appeal of U.S. government debt bolstered demand at today’s auction of $35 billion in two-year notes.

The securities yielded 0.313 percent, compared with the average forecast of 0.314 percent in a Bloomberg News survey of nine of the Federal Reserve’s 21 primary dealers. The bid-to- cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.62, versus an average of 3.71 for the past 10 offerings.

“The story is the same, as European fears are still driving price action,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald LP in New York, which as a primary dealer is obliged to bid in Treasury sales. “We are still near low yields levels as Europe is still forefront on everyone’s mind, and nothing is going to change that any time soon unless something in Europe changes.

The yield on the current two-year note rose one basis point, or 0.01 percentage point, to 0.31 percent, at 1:16 p.m. in New York, according to Bloomberg Bond Trader prices. It added two basis points earlier. Ten-year yields advanced two basis points to 1.62 percent after earlier rising five basis points.

Indirect bidders, an investor class that includes foreign central banks, purchased 31.7 percent of the notes sold today, compared with an average of 34 percent for the past 10 sales.

Direct Bidders

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 7.9 percent, versus an average of 11.8 percent for the past 10 auctions.

The Treasury is selling $99 billion in notes and bonds this week. It will auction $35 billion in five-year debt tomorrow and $29 billion in seven-year securities on June 28.

Two-year notes yielded 3.00 percent at the last offering of the maturity on May 22. The record auction low was 0.222 percent in August.

Treasuries pared losses earlier as concern European leaders are failing to make progress toward resolving the region’s sovereign-debt crisis renewed the refuge appeal of U.S. government debt.

Yields dropped from the highs on the day after Reuters reported that German Chancellor Angela Merkel rejected shared liability for debt, citing people at a meeting of the nation’s coalition parties.

“The constant debate in Europe is keeping us near these low yield levels as we are still in the middle of a banking and sovereign-debt crisis,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.

This week’s note sales, combined with the June 21 auction of $7 billion in 30-year Treasury Inflation Protected Securities, will raise $49.9 billion of new cash, as maturing securities held by the public total $56.1 billion.

Two-year notes have returned 0.03 percent this year, compared with a 1.92 percent gain for Treasuries overall, according to Bank of America Merrill Lynch indexes. The two-year securities returned 1.46 percent in 2011, while Treasuries overall gained 9.79 percent.

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

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


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