Treasury yields at almost 8-month high after 10-year note sale

Treasury 10-year note yields traded close to the highest level since April after the U.S.’s first auction of the securities this year was met with weaker-than-average demand.

The benchmark yield pared an earlier decline after the $21 billion in notes drew a yield of 1.863%, compared with a forecast of 1.849% in a Bloomberg News survey of eight of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.83, compared with an average of 3 for the previous 10 sales.

“It came a little weaker than people anticipated -- there was a pretty decent short-covering bid going into it,” said Thomas di Galoma, a managing director at Navigate Advisors LLC, a brokerage for institutional investors in Stamford, Connecticut. The recent run-up in Treasury prices, he said, “may have abated some of the enthusiasm for the auction.”

The yield on the current 10-year note declined 0.1%, or 0.01 percentage point, to 1.86% at 2:11 p.m. in New York, according to Bloomberg Bond Trader prices. It earlier rose and fell as much as two basis points. The 1.625% security maturing in November 2022 rose 3/32, or 94 cents per $1,000 face value, to 97 29/32.

The yield last week jumped 20 basis points, touching 1.97% on Jan. 4, the highest since April 26, after U.S. lawmakers reached a budget deal to avoid the so-called fiscal cliff and the Fed in December announced plans to increase its monthly purchases of government and mortgage debt. It has fallen 11 basis points since Jan. 4.

Momentum ‘Slowed’

“The selloff in rates has been pretty severe, but the momentum for higher rates has slowed for now,” Aaron Kohli, an interest-rate strategist in New York with BNP Paribas SA, a primary dealer, said before the auction. “The unresolved debt- ceiling debate will keep a bid in the market, and the bias is for lower yields.”

Indirect bidders, an investor class that includes foreign central banks, purchased 28.5% of the notes today, compared with an average of 38.1% for the past 10 sales.

Direct bidders, or institutional investors outside of the 21 primary dealers required to bid at U.S. debt auctions, bought 14.8% of the notes after purchasing 42.7% at the December auction, the second highest on record after 45.4% at the July sale.

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