Treasury bond demand most this year on fiscal cliff concern

S&P Odds

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 12.4 percent on the bonds, versus 14.2 percent at the last sale and an average of 14.4 percent for the past 10 auctions.

Thirty-year bonds have returned 4.3 percent this year, compared with a 2.4 percent gain in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes.

The probability that political wrangling will push the U.S. over the fiscal cliff has increased to about 15 percent, Standard & Poor’s said today in a report. The rating company stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political brinkmanship that pushed the nation to the deadline an agreement to lift the debt ceiling.

“Our base-case forecast has long been for Congress to resolve the fiscal cliff after the election and before the end of the year,” said S&P, which has a negative outlook on the U.S. credit grade. “Lawmakers will finally come to realize that they must reach some compromise on tackling the long-term federal debt, phasing in spending cuts and tax increases over several years.”

Coupon Auctions

Today’s auction was the final of three offerings of coupon- bearing securities by the Treasury this week totaling $72 billion.

The U.S. sold $24 billion of 10-year debt yesterday at a yield of 1.675 percent and auctioned $32 billion of three-year notes on Nov. 6 at a yield of 0.392 percent. Both sales drew lower demand than at previous offerings. Investors bid for 2.59 times the amount of securities available yesterday, versus 3.26 times at the auction in October. For the three-year sale, the figure dropped to 3.41, from 3.96 a month earlier.

“There is definitely concern out there, given the policy and economic uncertainties, and even at these low yields investors are willing to pay up to get the long end,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors.

Quantitative Easing

Long-bond yields fell yesterday the most in 11 weeks as Obama’s re-election also fueled speculation the Fed will keep buying Treasuries.

The Fed purchased $2.3 trillion of Treasuries and mortgage- related bonds in two rounds of quantitative-easing stimulus from 2008 to 2011 and has begun a third effort. The central bank announced Sept. 13 it would buy $40 billion a month of mortgage- backed securities until the outlook for the labor market improves “substantially.”

Fewer Americans than forecast filed claims for unemployment insurance last week as the effects of Hurricane Sandy started to show up. Applications for jobless benefits fell by 8,000 to 355,000 in the week ended Nov. 3, the Labor Department said today in Washington. A Bloomberg News survey had forecast claims for jobless benefits increased by 2,000 to 365,000 last week.

Bloomberg News

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