Demand from the group of investors that includes pension funds and insurance companies fell to 5.2% in August, after the record demand seen in July, echoing this sale’s weak demand after last month’s near record.
Yesterday’s three-year note auction saw direct bidders purchase a record amount for the second straight sale.
“It was a sloppy auction, and most of that was because of the absence of direct bidders,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., a primary dealer. “Investors were gun shy heading into the auction because of how aggressive and unpredictable the direct bid has been of late.”
Ten-year U.S. debt has lost 1.1% this year, according to a Bank of America Merrill Lynch indexes, compared with a 0.6% loss in the broader Treasury market. The notes returned 4.2% in 2012, compared with a 2.2% gain by Treasuries overall.
The difference between the yields on two-year notes and 10- year securities, the so-called yield curve, narrowed to 1.62 percentage points, down from 1.69 percentage points on Jan. 4, the widest since May.
The so-called yield curve typically narrows when investors anticipate a slow economic recovery because they demand less compensation for the risk of inflation.
The government is selling $66 billion of notes and bonds this week. It sold $32 billion of three-year securities yesterday and is due to auction $13 billion of 30-year debt tomorrow.
The sales this week will raise $24.4 billion of new cash, as maturing securities held by the public total $41.6 billion, according to the Treasury.