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Policy: Economy

Treasuries little changed after $29b 7-year note auction

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Commerce,Treasury,Economy,Bloomberg News

Treasuries were little changed after the U.S. sale of $29 billion in seven-year notes attracted higher-than-average demand.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.60, compared with an average of 2.55 for the previous 10 sales. The notes yielded 2.317 percent, compared with a forecast of 2.306 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers. U.S. debt fell earlier following a report from the Commerce Department that durable-goods orders climbed in March more than forecast, adding to evidence the economy is strengthening.

“You have to call it a solid auction,” said Michael Lorizio, senior trader at Manulife Asset Management in Boston. “Pricing was spot-on and the non-dealer participation was tremendous.”

The yield on the current seven-year note was little changed at 2.29 percent, at 1:04 p.m. in New York, according to Bloomberg Bond Trader prices. The yield on the benchmark 10-year note was little changed at 2.70 percent. The yield rose as much as three basis points.


Auction Detail


Indirect bidders, an investor class that includes foreign central banks, purchased 49.9 percent of the notes, the most since August 2011 and compared with an average of 42.7 percent for the past 10 sales.

Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 19.1 percent of the notes, compared with an average of 20.7 percent at the last 10 auctions.

Investors have bid 3.04 times the $742 billion of notes and bonds sold by the U.S. Treasury this year, compared with 2.87 times last year and 3.15 times in 2012, the record high, according to Treasury data compiled by Bloomberg.

Seven-year notes have returned 2.1 percent this year, tracking a gain of 2.1 percent for the broad Treasuries market, according to Bank of America Merrill Lynch indexes. The seven- year securities declined 4.8 percent in 2013, while Treasuries overall fell 3.4 percent.

Today’s offering is the last of three note auctions this week. The government also sold $35 billion of five-year notes yesterday at a yield of 1.732 percent. It auctioned $32 billion of fixed-rate two-year notes on April 22 at a yield of 0.447 percent.


Cash Raise


This week’s note offerings, plus an $18 billion sale of five-year Treasury Inflation Protected Securities on April 17 and a $15 billion auction of two-year floating-rate debt on April 29, total $129 billion. The sales will raise $56.8 billion of new cash, as maturing securities held by the public total $72.2 billion, according to the Treasury.

Orders for goods meant to last at least three years increased 2.6 percent, the biggest gain since November, after rising 2.1 percent in the prior month, a Commerce Department report showed. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance.

Treasuries rose yesterday as a weaker-than-forecast housing report and the conflict between Russia and Ukraine spurred investors to seek a haven in government securities.

Russian President Vladimir Putin warned Ukraine today against continuing its anti-separatist offensive after government troops killed five rebels and prompted Russia’s military to begin drills on the two nations’ border.

Amid rising concern about the conflict in Ukraine, one- month Treasury bill rates reached negative 0.005 percent today for the first time since Feb. 18.


Fed Policy


Fed policy makers are winding down the bond-purchase program they have used to support the economy. They have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008.

“The U.S. economy is healing and is getting better,” Mohamed El-Erian, who quit Pacific Investment Management Co. in January, said yesterday on Bloomberg Television’s “In the Loop” with Betty Liu. The pace of growth in the U.S., China and Europe means the Fed won’t raise rates “for a while,” he said.

El-Erian is chief economic adviser at Allianz SE, the Munich-based insurer and money manager that also owns Pimco, and a columnist for Bloomberg View.


To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox, Greg Storey

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