Bloomberg News

Treasuries Pare Gains After 30-Year Sale Amid Fed Speculation

June 13, 2013

Treasuries pared gains, pushing yields toward 14-month highs, after demand weakened at a U.S. sale of $13 billion of 30-year bonds amid concern the Federal Reserve may reduce stimulus.

The securities drew a yield of 3.355 percent, the highest since March 2012, compared with a forecast of 3.324 percent in a Bloomberg News survey of eight of the Fed’s 21 primary dealers. Treasuries gained earlier after the World Bank cut its global-growth forecast yesterday amid bets central banks may back off on stimulus, fueling haven demand. U.S. yields have climbed since May amid wagers the Federal Open Market Committee, which meets June 18-19, will slow its bond buying. A gauge of the outlook for inflation fell to the lowest since January 2012.

“There is concern about whether investors want to take much risk in general ahead of the FOMC next week,” said Michael Pond, head of global inflation-linked research at Barclays Plc, which as a primary dealer is obligated to bid at U.S. government debt auctions.

The current 30-year bond yield fell three basis points, or 0.03 percentage point, to 3.34 percent at 1:19 p.m. New York time, according to Bloomberg Bond Trader data. It slid earlier as much as six basis points. The yield touched 3.43 percent on June 11, the highest since April 4, 2012.

The long-bond yield has increased from this year’s low of 2.81 percent set May 1.

Ten-year note yields fell four basis points to 2.19 percent after dropping as much as seven basis points earlier, the biggest intraday decrease in a week. They reached 2.29 percent on June 11, also the highest since April 2012.

Demand Gauge

At today’s auction, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities that were offered, was 2.47, versus an average of 2.58 for the previous 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 40.2 percent of the bonds, compared with an average of 36.7 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 8.5 percent of the securities, compared with an average of 13.8 percent at the past 10 auctions.

Note Sales

A $21 billion 10-year note sale yesterday drew a bid-to-cover ratio of 2.53. It was the least since August. At an auction of $32 billion in three-year notes on June 11, the bid-to-cover ratio was 2.95, the smallest since December 2010. Today’s auction is the final of three sales this week of coupon-bearing debt totaling $66 billion.

Demand for Treasuries at auction has slackened this year amid signs of improvement with the U.S. economy. Investors have bid $2.97 for each dollar of debt sold at the U.S. government’s $958 billion in Treasury notes and bonds through yesterday, compared with a record bid-to-cover ratio of $3.15 set in 2012, according to Treasury data compiled by Bloomberg.

Treasuries briefly pared gains after the Commerce Department reported U.S. retail sales increased 0.6 percent in May, more than forecast, and the Labor Department said jobless-benefit claims dropped last week by 12,000 to 334,000.

Even amid signs of stronger economic growth, the difference between yields on 10-year notes and same-maturity inflation-indexed securities shrank today to as little as 2 percentage points, the least since January 2012. The gap, known as the 10-year break-even rate, is a gauge of traders’ expectations for consumer prices over the life of the debt. It reached a 2013 high of 2.61 percentage points on Feb. 4.

TIPS Sale

The U.S. said today it will sell $7 billion in 30-year Treasury Inflation Protected Securities on June 20.

Fed policy makers meet June 18-19 as investors weigh whether the economy is strengthening enough for Chairman Ben S. Bernanke to consider reducing bond purchases that have been used to keep borrowing rates low.

The Fed is buying $85 billion of Treasuries and mortgage-backed securities each month to put downward pressure on borrowing costs and spur economic growth. It will slow the purchases to $65 billion a month at its October meeting, economists in a Bloomberg survey forecast last week.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net

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


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