Fed concerns hurting treasuries?

October 9, 2014 11:32 PM

The Treasury auctioned $13 billion of 30-year bonds at the lowest yield in 17 months a day after the Federal Reserve said it was concerned slowing global economic growth was a risk for the U.S.

The bonds yielded 3.074% at auction, the least since 2.980% in May 2013, amid speculation the central bank will keep its interest-rate target lower for longer. The sale was rated a “3’ by six of the Fed’s 22 primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding. The auction completed $61 billion of coupon debt sales this week.

‘‘There are global growth issues, global yields outside the U.S. are at very low levels and there remains the steady bid for long duration that has existed all year,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

The U.S. 30-year yield rose one basis point to 3.07% after reaching the lowest level since May 2013, according to Bloomberg Bond Trader prices.

The U.S. sold $27 billion of three-year debt on Oct. 7 at a yield of 0.994% and auctioned $21 billion of 10-year securities yesterday at a yield of 2.381%.

Auction Demand

Investors bid 2.89 times the $61 billion in notes and bonds sold by the Treasury this week. That compares with 2.91 times the same amount sold last month and 2.86 times the $67 billion auctioned in August, Treasury data compiled by Bloomberg show.

The bid-to-cover ratio at the bond auction, which gauges demand by the amount bid with the amount offered, was 2.40, versus an average 2.45 at the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 46.2% of the bonds, compared with an average of 45.5% for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 21.5% of the bonds, compared with an average of 16.2% at the past 10 auctions.

“The auction wasn’t bad,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “The bid-to-cover was down, the auction sold at relatively expensive levels with the yield fairly low, and non-dealer demand was pretty strong.”

Bond Rally

Treasuries (CBOT:ZNZ14) have rallied this week as Fed policy makers said a global slowdown and a stronger dollar (NYBOT:DXZ14) posed potential risks to the U.S. economic outlook, according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released yesterday. Traders see a 33% chance the central bank will raise the benchmark rate target by July 2015, fed funds futures data compiled by Bloomberg showed, down from 59% on Sept. 18, a day after Fed policy makers met.

A number of U.S. central-bank officials said the nation’s expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated.”

Thirty-year bonds have returned 21% this year, compared with a 4.7% gain by the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The long bond lost 15.1% in 2013, versus a 3.4% decline by Treasuries overall.

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