Treasuries rose on demand for the safest securities before three sales of notes and bonds totaling $66 billion this week, starting with a $32 billion three-year debt auction today.
Yields on the benchmark 10-year bond fell even after the French government called speculation of a downgrade to the nation’s credit rating “unfounded.” The three-year notes scheduled for sale today yielded 0.39% in pre-auction trading, compared with a record low 0.327% at the previous auction on Dec. 11.
“It’s a flight to safety -- that’s the rumor, that’s what’s driving the market right now,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 21 primary dealers that trade with the Federal Reserve.
Benchmark 10-year note yields fell three basis points, or 0.03 percentage point, to 1.87% as of 10:47 a.m. New York time, based on Bloomberg Bond Trader prices. The 1.625% security maturing in November 2022 rose 1/4, or $2.50 per $1,000 face value, to 97 26/32. Yields on thee 30-year bond fell four basis points to 3.06%.
The current three-year yield fell one basis point to 0.38% after increasing to 0.42% on Jan. 4, the most since Oct. 26.
At last month’s sale of three-year notes, bidders that buy directly from the Treasury purchased a record 24.8% of the notes, compared with 12.5% at the previous 10 sales.
“People are more willing to buy given the levels and the fact that the Fed is not selling up there anymore,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “Today’s auction will go fine.”
The Fed concluded at year-end its Operation Twist program of selling shorter-term securities and purchasing longer-term government debt, thus reducing the available supply of shorter- term debt.
The U.S. plans to sell $21 billion of 10-year notes tomorrow and $13 billion of 30-year bonds on Jan. 10. The amounts are unchanged from the last time the government issued this combination of securities in December.
The central bank is buying as much as $3.75 billion of Treasuries due from October 2018 to December 2019 today, according to the Fed Bank of New York website.
Treasuries are off to their worst start to a year since 2009, handing investors a 0.7% loss in 2013 as of yesterday, according to Bank of America Merrill Lynch indexes. It was the biggest decline for a first week since the Treasury was preparing to ramp up debt sales four years ago as it tried to snap a recession.