The U.S. Treasury’s sale of $65 billion of notes and bonds this week drew above-average demand from investors who aren’t primary dealers, even as Verizon Communications Inc. sold a record $49 billion in bonds.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 20.6 percent of yesterday’s offering of $13 billion of U.S. 30-year bonds, the most since June 2012. The Federal Reserve’s 21 primary dealers bought 41.7 percent, the least since July 2011, after averaging 46.8 percent at the prior 10 sales. The debt drew a yield of 3.82 percent, the highest since July 2011.
“The 30-year capped a series of successful Treasury auctions,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “There’s a great deal of uncertainty in the market about the near-term economic outlook, the performance of risk assets in a tapering world and a general risk aversion as the market moves into the fall.”
The 30-year bond yield was little changed at 3.85 percent in daily trading yesterday in New York, according to Bloomberg Bond Trader prices. It fell earlier as low as 3.81 percent, the least since Sept. 5. The 3.625 percent security rose 1/8, or $1.25 per $1,000 face amount, to 96 2/32.
The benchmark 10-year note yield was little changed at 2.91 percent, after falling earlier to 2.86 percent the lowest since Sept. 4. Three-year yields were little changed at 0.88 percent.
Investors in U.S. government securities have lost 3.8 percent this year, according to the Bloomberg U.S. Treasury Bond Index (BUSY) as of yesterday. U.S. debt gained 2 percent in 2012.
At today’s auction, indirect bidders, a class of investors that includes foreign central banks, bought 37.7 percent of the long bonds, the least since April, compared with a 38.6 percent average at the past 10 offerings.
The $21 billion of Treasury 10-year notes sold on Sept. 11 drew a yield of 2.946 percent, the highest since June 2011. The government auctioned $31 billion of three-year securities on Sept. 10 at a yield of 0.913 percent, the most since May 2011.
Direct investors purchased 29.6 percent of the 10-year notes, the most since March, compared with an average of 21.5 percent at the 10 previous auctions. At the three-year note sale, they bought 20 percent, also the highest share since March, versus a 19 percent average at the previous 10 offerings.
Overall demand for the securities auctioned this week increased above last month’s levels. The bid-to-cover ratio for the 30-year bonds, which gauges demand by comparing total bids with the amount of securities offered, was 2.40, compared with 2.11 for the August sale, which was the least since August 2011. The average at the past 10 sales was 2.51.
The bid-to-cover ratio for the 10-year note rose to 2.86, from 2.45 in August, and compared with a 2.73 average at the past 10 sales. For the three-year security, it was 3.29, up from 3.21 the month before, and compared with an average of 3.36 at the previous 10 offerings.
“It was a great week for U.S. bond supply because we had a lot of corporate deals, including a record-size Verizon deal that proceeded to rally after pricing,” CRT’s Lyngen said.
Verizon Communications Inc. (VZ:US) sold an unprecedented $49 billion of bonds yesterday, including $11 billion of 10-year securities at a yield that’s 225 basis points more than comparable-maturity Treasuries, according to data compiled by Bloomberg. The yield on the Treasury notes were the highest at an auction since a June 2011 sale of comparable maturity securities.
Investors have bid $2.88 for each dollar of the $1.508 trillion in U.S. government notes and bonds sold at auction this year, according to Treasury data compiled by Bloomberg. That’s down from the record $3.15 for the $2.153 trillion sold at last year’s offerings.
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