Treasuries fell, pushing the 10-year note yield higher for a third day, as the government received lower-than-average demand at the auction of $32 billion of three-year notes.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.38, compared with an average of 3.57 for the past 10 sales. The U.S. will sell $24 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on May 9. Bidding has slowed at Treasury auctions this year with the economy showing signs of recovery.
“The 10- and 30-year bond auctions will be the big drivers for the tone the rest of the week,” said Tom Simons, an economist in New York at Jefferies LLC, one of the 21 primary dealers that bid on U.S. debt auctions. “The big question will be have they cheapened up enough? We are near important psychological levels in the long end.”
The U.S. 10-year note yield climbed two basis points, or 0.02 percentage point, to 1.78% at 3:32 p.m. in New York, according to Bloomberg Bond Trader prices. The 2% security due in February 2023 fell 6/32, or $1.88 per $1,000 face amount, to 101 31/32.
The yield climbed to the highest since April 12 and traded above its 200-day moving average for a second day, an indication it may rise.
The yield on the current three-year note rose one basis point to 0.34%. Two-year note yields increased one basis point to 0.22%.
Bidding has slowed at Treasury auctions this year, with the $753 billion in debt sales attracting an average of $3.02 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, according to data released by the Treasury and compiled by Bloomberg.
The 10-year note sale on April 10 drew a bid-to-cover ratio of 2.79, versus an average of 2.92 for the past 10 sales.
The three-year debt drew a yield of 0.354%, compared with a forecast of 0.355% in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers.
“Three-year notes are yielding more than two-year notes, so there is demand,” Simons said. “The three-year sector is pretty stable, given the Fed’s stance on easing and the safety bid.”
Indirect bidders, an investor class that includes foreign central banks, purchased 30.7% of the notes, the most since September and compared with an average of 25.8% for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 14.6% of the notes at the sale, the least since September and compared with an average of 19.5% for the past 10 auctions.
Treasury three-year notes have handed investors a gain of 0.2% this year, compared with an increase of 0.6% in 2012, according to Bank of America Merrill Lynch indexes. The broader Treasuries market has gained 0.3% this year after gain of 2.2% last year.
The sales this week will raise $12.4 billion of new cash, as maturing securities held by the public total $59.6 billion, according to the Treasury.
Yields surged last week, with the 10-year rising 11 basis points, as stronger-than-forecast jobs data increased optimism that the U.S. economy is gathering pace.
“After the employment number, we didn’t have any real retracement in prices, which means rates were probably too low,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker.
The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, was at minus 0.73%, the closest to zero since April 2. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
Treasuries have fallen 0.5% this month as of yesterday, according to Bank of America Merrill Lynch indexes. The Standard & Poor’s 500 Index returned 1.3% including reinvested dividends, according to data compiled by Bloomberg.