“The Treasury will try to keep consistent supply; This is a bit of a blip in terms of the longer-term numbers,” said Larry Dyer, a U.S. interest-rate strategist with HSBC in New York, a primary dealer.
The federal budget deficit is on a pace to shrink to $775 billion for the 2013 fiscal year ending Sept. 30 from $1.09 trillion for 2012.
Later this year, Treasury may reduce the size of the auctions, Morgan Stanley economist Ted Wieseman said in April 25 report. The three-year note offerings, which have been $32 billion since October 2010, could be reduced as soon as June, while the size of 10-year note and 30-year bond auctions could be reduced as soon as September, Wieseman wrote.
Inflation measured by the personal consumption expenditures index, a gauge preferred by the Fed, rose 1.1% in March from a year earlier, compared with 1.3% the previous month, according to data from the Commerce Department in Washington. The figure is less than the central bank’s goal of 2% and the slowest growth in inflation since March 2011.
The 10-year break-even rate, a measure of inflation expectations derived from the difference between yields on conventional U.S. debt and Treasury Inflation Protected Securities, was at 2.36 percentage points. It touched a 2013 low of 2.25 percentage points on April 18 and a high of 2.6 percentage points on Feb. 4.
“Inflation-related data remains benign,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “The longer end of this yield curve looks relatively attractive.”
The Fed bought $1.52 billion of Treasuries today, maturing between February 2036 and August 2042.