U.S. 30-Year Yields Climb Amid Lower-Than-Average Sale Demand
By Susanne Walker and Cordell Eddings
Feb. 11 (Bloomberg) -- Treasury 30-year
bond yields touched a four-week high as a record-tying $16 billion auction of the securities attracted lower-than-average demand and European leaders said they reached an accord on Greece’s debt crisis.
The so-called long bonds drew a yield of 4.720 percent, compared with an average forecast of 4.687 percent in a Bloomberg News survey of 10 of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.36, versus 2.68 at the last sale and an average of 2.48 at the past 10 offerings.
“Overall it was a weak auction,” said
Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “It shows that demand for 30-year Treasuries is not as strong as demand for shorter-dated Treasuries. Investors are leery of tying up money for 30 years given the more positive outlook on the economy and inflation over the long term.”
The current 30-year bond
yield rose four basis points, or 0.04 percentage point, to 4.68 percent at 3:20 p.m. in New York, according to BGCantor Market Data. It touched 4.71 percent, the highest level since Jan. 14. The 10-year note yield increased four basis points to 3.73 percent. Two-year note yields were unchanged at 0.88 percent.
The auction’s yield was 2.5 basis points more than the level where the debt was trading before the sale, according to
William O’Donnell, U.S. government bond strategist at primary dealer Royal Bank of Scotland Group Plc, and
Ian Lyngen, a government bond strategist at CRT Capital Group LLC, both in Stamford, Connecticut.
Cost to Treasury
The higher yield at the auction may have cost the Treasury as much as $61.6 million in interest over the life of the debt, according to Bloomberg data.
Direct bidders, non-primary dealers that bid on their own accounts, bought 24.1 percent of the securities today, the most in at least five years. They purchased 4.9 percent at the January sale. Primary dealers bought 47.4 percent of the bonds today, compared with 54.4 percent at the last offering. Primary dealers trade with the Fed and are required to participate in U.S. debt sales.
“It was weak auction, but not as bad as it seems given the strong direct bids,” said
Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., another primary dealer. “Most of the direct bids that have occurred lately have come from domestic real-money investors. What this means is that there is not likely to be a re-auction process indicating strong underlying demand.”
Indirect Bidders
Indirect bidders, an investor class that includes foreign central banks, bought 28.5 percent of the bonds today. They purchased 40.7 percent of the bonds at the last offering, on Jan. 14. The average for the past 10 sales is 43.2 percent.
The January sale of long bonds, a $13 billion offering, drew a yield of 4.64 percent, compared with an average forecast of 4.689 percent in a Bloomberg News survey. Investors bid for 2.68 times the amount of securities offered compared with a bid-to- cover ratio of 2.45 at the Dec. 10 auction.
Today’s sale follows the auction of $40 billion of three- year notes on Feb. 9, and an offering of $25 billion of 10-year notes yesterday, bringing this week’s total to $81 billion, tying a record for this combination of securities.
Indirect bidders bought 33.2 percent of the 10-year securities sold yesterday, compared with an average of 39.3 percent at the past 10 auctions. Investors
bid for 2.67 times the 10-year debt on offer, compared with an average of 2.76 at the past 10 sales.
EU Pledges Action
Greek government bonds, which have plunged since December on concern the country will be unable to tackle its deficit, rose for a third day as European Union leaders said they were prepared to take “determined” action to stanch the crisis. They also demanded Greece get its budget deficit under control, while stopping short of offering specific measures.
“This action has led to an unwinding of the ‘flight to quality’ trade of recent weeks,” wrote
Kevin Giddis, head of fixed-income sales, trading and research at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee, in a note to clients.
Treasuries slid yesterday as Fed Chairman
Ben S. Bernanke said in prepared testimony that policy makers may raise the discount rate, charged on direct loans to commercial banks, “before long.” Bernanke repeated the Federal Open Market Committee’s statement that low interest rates are warranted “for an extended period.”
“Bernanke’s remarks weighed on Treasuries,” a team of analysts at Unicredit SpA, including Roberto Mialich in Milan, wrote in a research note today. “The Fed’s exit strategy is likely to continue to weigh on them in the coming days.”
Futures contracts on the Chicago Board of Trade show traders see a 20 percent chance the Fed will lift the target rate by June, from 16 percent a week ago.
mah 
