Treasuries decline with 3-year auction demand less than average

Bond Returns

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.

Bloomberg News

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