US 10-year yields reach two-week low as investors seek refuge

Further Fed Options

U.S. policy makers don’t rule out further options to support growth, Bernanke said on March 27, according to a transcript of an ABC News interview provided by the network. The central bank bought $2.3 trillion of debt under two rounds of quantitative easing from December 2008 to June 2011.

The Fed sold $8.6 billion of Treasuries today maturing from July 2014 to March 2015 as part of a program to replace $400 billion of shorter-term debt in its holdings with longer maturities to cap borrowing costs.

Bonds gained even after initial claims for U.S. jobless benefits fell. Applications fell 5,000 in the week ended March 24 to 359,000, the lowest since April 2008, the Labor Department reported.

Today’s auction was the last of three note offerings this week totaling $99 billion. The seven-year securities drew a yield of 1.590%, compared with a forecast of 1.572% in a Bloomberg News survey of nine primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.72, versus an average of 2.86 for the previous 10 sales.

‘Holding Up’

“The market is holding up here; there are definitely buyers of Treasuries out there,” said Justin Lederer, an interest-rate strategist in New York and the primary dealer Cantor Fitzgerald LP.

Indirect bidders, the investor class that includes foreign central banks, purchased 42.8% of the notes. That compared with an average of 40.2% for the past 10 offerings and was the highest since reaching 51.7% in August. Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, bought 13.4%, versus an average of 13% at the past 10 sales.

The securities drew a yield of 1.418% in February at the last sale and reached a record low of 1.359% at the January auction.

The government sold $35 billion of five-year debt yesterday at a yield of 1.040% and the same amount of two-year securities on March 27 at 0.340%. This week’s note auctions will raise $39.5 billion of new cash as maturing securities held by the public total $59.5 billion.

Inflation Bets

The gap between the yields on 10-year Treasury Inflation- Protected Securities and conventional U.S. debt narrowed for a seventh day to 2.31percentage points in its longest slide since March 2010. The figure, called the 10-year break-even rate, reflects traders’ outlook for inflation over the next decade.

The five-year, five-year forward break-even rate, the Fed’s preferred measure for determining inflation expectations and which projects the pace of consumer-price increases starting in 2017, fell to 2.71% on March 26 from 2.78% on March 19, the highest level since August. The average for the past decade is 2.76.

Bloomberg News

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