Treasury’s final auction of year draws highest yield since 2011

Bernanke View

Fed Chairman Ben S. Bernanke said if job gains continue and inflation increases, “I imagine we’ll continue to do, probably at each meeting, a measured reduction” in purchases.

Seven-year notes have lost 3.8% this year, versus a drop of 2.9% for Treasuries overall, according to Bank of America Merrill Lynch indexes. The seven-year securities returned 3.9% in 2012, while Treasuries overall gained 2.2%.

The government sold $32 billion in two-year debt on Dec. 17 at a yield of 0.345%, $35 billion in five-year securities yesterday at a yield of 1.6% and $16 billion in five-year inflation-linked notes earlier today at a yield of negative 0.375. Holders of TIPS receive an adjustment to the principal value of their securities equal to the change in the consumer price index, in addition to a fixed rate of interest that’s smaller than the interest paid to a holder of conventional debt.

The sales will raise $45.8 billion of new cash, as maturing securities held by the public total $66.2 billion, according to the U.S. Treasury.

“The market is a bit fatigued by all the supply it’s had to take down in a week where you also had to deal with the uncertainty of the Fed and the ensuing taper,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, a primary dealer.

Investors bid $2.87 for each dollar of the $2.14 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.

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