Treasuries fell after the U.S. auctioned $13 billion of 30-year bonds amid signs the world’s biggest economy is gathering strength.
Losses were tempered as yields at almost 11-month highs attracted buyers. The sale drew a yield of 3.248%, the highest since March 2012, compared with an average forecast of 3.243% in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.43, the lowest since August, versus 2.74 last month. Treasuries fell earlier as U.S. jobless claims unexpectedly dropped, fueling risk appetite.
“There was less demand in general after yesterday’s pretty strong auction, as we are still in somewhat of a bearish environment,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “That said, we could be set up for a rally given these higher yields and how oversold the market.”
The yield on benchmark 30-year bonds increased two basis points, or 0.02 percentage point, to 3.24% at 3:07 p.m. in New York, according to Bloomberg Bond Trader Prices. It touched 3.26% today after reaching 3.28% on March 8, the highest level since April 5.
Ten-year note yields rose one basis point to 2.03% and reached 2.07%. They touched 2.08% on March 8, the highest since April.
Foreign Banks
Indirect bidders, an investor class that includes foreign central banks, purchased 42% of the bonds sold today, compared with 36.4% at the Feb. 14 bond sale and an average of 35.8% for the past 10 offerings.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 4.9%, the least since September 2009, versus 14.5% at the previous sale and an average of 15.8% for the past 10.
Primary dealers bought 53.1% of the securities, the most since October.
Thirty-year bonds have lost 5.1% this year, compared with a 1% decline in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes.
The U.S. sold $21 billion of 10-year debt yesterday at a yield of 2.029%, compared with a forecast of 2.057% in a Bloomberg News survey of eight primary dealers. The government auctioned $32 billion of three-year notes on March 12 at a yield of 0.411%, below the 0.413% average forecast in a Bloomberg survey.
New Cash
The sales this week are raising $25.5 billion of new cash, as maturing securities held by the public total $40.5 billion, according to the Treasury Department.
U.S. bonds fell earlier as the Labor Department reported that initial claims for unemployment benefits fell by 10,000 to 332,000 in the week ended March 9, the fewest since mid-January. A Bloomberg survey forecast an increase to 350,000.
“Any time you get a downward drift in claims, you’ll get Treasuries selling off,” said Steven Ricchiuto, chief economist in New York at the primary dealer Mizuho Securities USA Inc. “It’s pushed us back to the upper end of the yield range.”
Ten- and 30-year yields reached the highest levels in 11 months on March 8 after the Labor Department reported that U.S. payrolls increased by 236,000 jobs last month, more than forecast. Commerce Department figures yesterday showed U.S. retail sales jumped 1.1% in February from January, the biggest gain in five months.
Traders’ inflation expectations rose today. The yield gap between 10-year notes and Treasury Inflation Protected Securities, called the 10-year break-even rate, rose to 2.59 percentage points, the widest since Sept. 17 on a closing basis. The gap signals traders’ outlook for consumer prices over the life of the debt. It has averaged 2.35 over the past year.
Fed Purchase
The Fed purchased $3.34 billion today of Treasuries maturing from May 2020 to February 2023. It is buying $85 billion of Treasury and mortgage debt a month to spur the economy by putting downward pressure on borrowing costs.
Treasury securities due in a decade and more traded at almost the cheapest level since 2011 relative to global peers with comparable maturities, according to the Bank of America indexes. Yields on Treasuries were 54 basis points higher on March 8 than those in an index of other sovereign debt, the most since August 2011, the data showed. The spread was 53 basis points yesterday.
