Treasuries fall a third day as economic data damp auction demand

Treasuries fell for a third day as a decline in U.S. unemployment-insurance claims and a gain in retail sales sapped demand at the government’s auction of $13 billion of 30-year bonds.

Losses were tempered by concern a budget standoff may push the U.S. economy into recession. The sale drew a yield of 2.917 percent, the highest since May, versus a 2.889 percent forecast in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers. Long bonds had erased losses just before the auction after U.S. House Speaker John Boehner said President Barack Obama isn’t serious about resolving the fiscal stalemate.

“The market got ahead of itself before the bid,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “There remains continued optimism that the economy will be better next year as long as headwinds die down.”

The yield on the current 30-year bond increased two basis points, or 0.02 percentage point, to 2.91 percent at 3:46 p.m. in New York, according to Bloomberg Bond Trader data. It reached 2.93 percent earlier, the highest level since Nov. 2, before touching 2.88 percent. The 2.75 percent security due in November 2042 fell 11/32, or $3.44 per $1,000 face amount, to 96 7/8.

Yields on the benchmark 10-year note rose three basis points to 1.73 percent. They touched 1.74 percent, the highest since Nov. 7.

Recession Prospect

Stocks slid as U.S. lawmakers from both political parties expressed renewed pessimism today about the prospects for resolving the budget struggle before more than $600 billion automatic in tax increases and spending cuts start taking effect in January. The Congressional Budget Office has said that if nothing changes, the stalemate probably would lead to a recession.

The Standard & Poor’s 500 Index dropped as much as 0.9 percent, snapping a six-day winning streak.

At today’s auction, the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.5, versus an average 2.61 at the past 10 sales. The ratio was 2.77 percent at the November sale, the highest level this year.

Indirect bidders, an investor class that includes foreign central banks, purchased 33.7 percent of the notes. That compared with 45.4 percent of the notes at the November sale, the most since April 2011, and an average for the past 10 offerings of 33.9 percent.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 20.3 percent, the most since June., versus 12.4 percent at the last sale and an average of 14.9 percent at the past 10.