Treasury rates jump on bills due on U.S. debt-ceiling deadline

‘Same Cloth’

“Yellen and Bernanke are cut from the same cloth,” said Richard Clarida, a former assistant Treasury secretary who is now an executive vice president at Newport Beach, California- based Pacific Investment Management Co., and professor of economics at Columbia University in New York, in an interview on Bloomberg Television with Tom Keene. An early task will be to “lay out tapering and reduction of the Fed’s QE. At some point in 2014, it’s very likely the Fed will be tapering.”

Treasuries due in one to 10 years have fallen 1.2% in 2013, while those maturing in a decade or longer tumbled 9.2%, based on Bloomberg World Bond Indexes.

Shorter-maturity U.S. notes tend to follow what the Fed does with its target for overnight lending between banks, while longer-dated bonds are more influenced by the inflation outlook.

The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices over the life of the debt, was little changed at 2.21 percentage points. The spread expanded to 2.27 percentage points on Sept. 23, the most since Aug. 13.

Notes Auction

Today’s 10-year auction drew a yield of 2.657%, compared with 2.946% at last month’s sale. The bid-to- cover ratio -- which gauges demand by comparing total bids with the amount of securities offered -- was 2.58, compared with an average of 2.76 for the previous 10 sales.

“There was some concern because it’s the last supply we get before the deadline,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities LLC, a New York-based brokerage for institutional investors. “There are a lot of people waiting to get clarity on what’s going on in D.C. with the shutdown and with the debt ceiling. It’s keeping people a little bit cautious.”

Indirect bidders, an investor class that includes foreign central banks, purchased 38.6% of the notes at today’s sale, compared with an average of 37.3% for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 21.2% of the notes, compared with an average of 23.1% at the previous 10 auctions.

Bond Sale

Ten-year notes have lost 5.6% this year, compared with a 2.5% drop in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The benchmark notes returned 4.2% in 2012, versus a 2.2% gain by Treasuries overall.

The auction is the second of three offerings this week as the government sells $64 billion of notes and bonds. The U.S. sold $30 billion of three-year debt yesterday at a yield of 0.71% and will auction $13 billion of 30-year bonds tomorrow.

The sales will raise $31.7 billion of new cash, as maturing securities held by the public total $32.3 billion, according to the U.S. Treasury.

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