Treasury 10-year note (CBOT:ZNZ13) yields fell to the lowest level in six weeks as investors bet the Federal Reserve will maintain monetary stimulus as it awaits a pick-up in economic growth, stoking demand for government debt.
Treasuries remained higher as the U.S. sold $33 billion of two-year notes at a yield of 0.348%, below a forecast of 0.354% in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The Fed last week maintained its policy of buying $85 billion of debt a month to put downward pressure on borrowing costs, causing investors to push back forecasts for when the central bank will raise interest rates.
There’s a “gradual acceptance by the market that the Fed will remain accommodative,’ said Aaron Kohli, an interest-rate strategist in New York at BNP Paribas SA, a primary dealer. ‘‘The market is going to be grinding to lower yields over the next few months.’’
The benchmark 10-year note yield fell four basis points, or 0.04 percentage point, to 2.66% at 2:12 p.m. in New York, based on Bloomberg Bond Trader data, after declining five basis points in the previous two trading days. The yield touched 2.64%, the lowest since Aug. 13. The price of the 2.5% security due in August 2023 added 3/8, or $3.75 per $1,000 face value, to 98 20/32.
At the two-year note auction, indirect bidders, an investor class that includes foreign central banks, purchased 24% of the notes, compared with an average of 24.1% for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 21.8% of the notes at the sale, compared with an average of 22.6% for the past 10 auctions.
‘‘It was a solid auction all the way through -- shorts are getting squeezed with the Fed now not in play with tapering,’’ said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. ‘‘There’s a certain amount of give-back. This is a reflection of people having money to invest.’’ A short position is a bet an asset will decline in value.
Two-year notes have gained 0.2% this year, compared with a decline of 2.9% by Treasuries overall, according to Bank of America Merrill Lynch indexes. The two-year securities returned 0.3% in 2012, while Treasuries overall rose 2.2%.
The sales this week, along with last week’s $13 billion 10- year TIPS auction, will raise $47.6 billion of new cash, as maturing securities held by the public total $62.3 billion, according to the Treasury.
Investors bid $2.88 for each dollar of the $1.554 trillion in U.S. government notes and bonds sold at auction this year, according to Treasury data compiled by Bloomberg. That’s down from the record $3.15 for the $2.153 trillion sold at last year’s offerings.
The Treasury also plans to sell $35 billion of five-year notes tomorrow and $29 billion of seven-year debt the next day.
Investors in Treasuries were long this week, betting that the prices of the securities will rise, according to a survey by JPMorgan Chase & Co.
The proportion of net longs remained steady at 8 percentage points in the week ending yesterday, according to JPMorgan, matching the position in the week ending Sept. 16. Outright longs dropped to 19%, from 21%, while outright shorts dropped to 11% from 13%. Investors raised neutral bets to 70% from 66%.
‘‘Momentum remains relatively constructive in the Treasury market in the wake of the Fed’s decision not to taper,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “The market is grinding a little bit higher.”
Treasuries due in one to 10 years have returned 0.1% this quarter as of yesterday, based on the Bloomberg World Bond Indexes. U.S. government securities maturing in a decade and longer dropped 2.9%.
The market for U.S. government debt has yet to react to any potential impasse over raising the borrowing ceiling. Most federal operations would come to a halt when the fiscal year ends Sept. 30 if President Barack Obama’s administration and lawmakers can’t agree on a funding plan.
Treasuries that mature on Oct. 15 yielded 0.035%, from 0.037% two weeks ago. The rate on debt due Nov. 7 has held within two basis points of zero during the period.
Treasuries remained higher today as a report showed home prices in 20 U.S. cities rose in the 12 months through July by the most in more than seven years, helping boost owner equity.
The S&P/Case-Shiller index of property values in 20 cities increased 12.4% from July 2012, matching the median projection of 31 economists surveyed by Bloomberg and the biggest year-to-year advance since February 2006, a report from the group showed today in New York.
The Conference Board’s index of U.S. consumer confidence decreased to 79.7 in September from a revised 81.8 a month earlier, data from the New York-based private research group showed today. The Richmond Fed’s manufacturing index tumbled to zero from 14.