Treasury bonds fell for a second day as below-average demand at the government’s $32 billion three- year note sale weighed on projections for the 10- and 30-year auctions over the next two days.
The bid-to-cover ratio, which gauges demand by comparing the amount with the amount offered, was 3.24, the lowest at a three-year auction since September 2011, versus a 3.60 average at the previous 10 sales. Traders had speculated that the Bank of Japan (8301)’s plan to double its asset purchases might boost buying at the auction. The U.S. will sell $21 billion in 10-year notes tomorrow and $13 billion in bonds the next day.
“It will be difficult to sell the longer maturities with the three-year not going as well as expected,” said Paul Montaquila, fixed-income investment officer with BNP Paribas SA’s Bank of the West and BNP Paribas Securities Corp.
Yields on 30-year bonds rose two basis points, or 0.02 percentage point, to 2.94 percent at 5 p.m. in New York, Bloomberg Bond Trader prices showed. The 3.125 percent security due in February 2043 fell 15/32, or $4.69 per $1,000 face value, to 103 22/32.
The yield on the current three-year note was little changed at 0.33 percent. It touched 0.3 percent on April 5, the lowest level since Oct. 4.
Benchmark 10-year note yields were 1.75 percent after dropping to 1.68 percent on April 5, the least since Dec. 12.
Ten-year yields traded below 2 percent for the third straight week as Fed Chairman Ben S. Bernanke signaled in a speech yesterday that there was room for improvement in the economy, spurring bets the central bank will maintain asset purchases.
Treasury volatility as measured by the Bank of America Merrill Lynch MOVE index was 52.72 basis points today, the lowest level since Dec. 11. The gauge, which tracks the outlook for swings in U.S. government debt rates, has averaged 64 basis points over the past year.
The three-year securities sold today drew a yield of 0.342 percent, compared with an average forecast of 0.341 percent in a Bloomberg News survey of 10 of the Federal Reserve’s 21 primary dealers.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 16.2 percent of the notes, versus a record-high 26.9 percent in February and an average of 19 percent at the past 10 auctions.
Indirect bidders, an investor class that includes foreign central banks, purchased 19 percent of the notes, compared with an average of 26.6 percent at the past 10 sales. They bought a record-low 18 percent at the Feb. 12 offering.
“No one is excited about the front end of the market,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “It’s at one of the richest levels historically so that doesn’t give it much flavor. They may go longer out the curve and pick up duration.”
Last month’s sale of the debt yielded 0.411 percent, while the record-low yield of 0.327 percent was reached in December.
Three-year notes have gained investors 0.2 percent this year, compared with a return of 0.6 percent in 2012, according to Bank of America Merrill Lynch indexes. The broader Treasuries market has returned 0.5 percent this year after gaining 2.2 percent last year.
The Treasury Department is selling $66 billion in notes and bonds this week. The sales will raise $6.7 billion of new cash, as maturing securities held by the public total $59.3 billion, according to the Treasury.
New Bank of Japan Governor Haruhiko Kuroda said April 4 the central bank would double its monthly asset purchases in a bid to encourage inflation, a form of quantitative easing, or QE. Japan held $1.12 trillion of U.S. government debt, Treasury data through January shows.
“Everybody’s waiting to see what’s going to happen as Japan continues to do QE,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “They are searching for yield. The most secure thing they can go into right now are Treasuries.”
The yield on the 10-year Japanese note was 0.53 percent today, according to Bloomberg data.
The Fed is buying government and mortgage debt at a rate of $85 billion a month in a bid to boost expansion and reduce unemployment. The central bank purchased $1.57 billion of securities due between February 2037 and February 2043 today, according to the New York Fed’s website.
The Labor Department will say on April 11 that claims for jobless benefits dropped to 360,000 in the week ended April 6, according to the median estimate in a Bloomberg News survey of economists. Applications reached 385,000 in the period through March 30, the most in almost four months.
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