Tags: US | 5-Year | Notes | Gain | Sale | Draws | Strong

US 5-Year Notes Gain as Sale Draws Strongest Demand Since 1994

Wednesday, 25 May 2011 02:59 PM

Treasury five-year notes rose, pushing yields to almost the lowest this year, after the U.S. $35 billion offering of the securities attracted the strongest demand since 1994.

The sale, the second of three note auctions this week totaling $99 billion, drew a yield of 1.813 percent, compared with the average forecast of 1.830 percent in a Bloomberg News survey of eight of the 20 primary dealers obliged to participate in U.S. debt offerings. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.20, compared with 2.77 last month and an average of 2.82 at the past 10 sales. Indirect bidders, which include foreign central banks, bought the most since September.

“We’ve had a couple of very good auctions so far,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “The domestic economy is still sluggish, we still have the European sovereign debt crisis, there is still concern about growth globally.”

The yield on the current five-year note fell one basis point to 1.76 percent at 2:26 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2 percent note due April 2016 rose 2/32 or 63 cents to 101 4/32. The yield touched 1.73 percent May 23, the lowest since Dec. 8.

The yield on the benchmark 10-year note rose 0ne basis point to 3.13 percent. The yield touched 3.09 percent on May 18, the lowest since Dec. 7.

Bid Trends

Indirect bidders purchased 47.1 percent of the notes, compared with 40 percent at the April 27 auction and an average of 41.6 percent for the past 10 sales.

Direct bidders, non-primary dealers that place their bids directly with the Treasury, purchased 8.9 percent of the notes. They bought 11.2 percent of the securities at each of the last two sales and compared with an average of 10.2 percent at the past 10 offerings.

The offering is the second of three note auctions this week totaling $99 billion. The Treasury sold $35 billion in two-year debt yesterday and is scheduled to sell $29 billion of seven- year notes on May 26.

The Federal Reserve bought $4.8 billion of U.S. debt due from April 2013 to September 2013 today as part of its efforts to sustain the U.S. economic recovery.

Treasury 10-year note yields touched a level below their 200-day moving average for the first time since December on speculation Europe’s debt crisis is getting worse and the U.S. economy is weakening.

European View

The European Central Bank council member Christian Noyer said yesterday an austerity program was the only possible solution for Greece, which this week endorsed an asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts.

Treasurys held in custody by the Fed for foreign central banks have risen 2.2 percent since the end of March to $2.7 trillion, according to central bank data.

“Everyone wants the bonds,” said Ira Jersey, an interest- rate strategist at Credit Suisse Group AG in New York, a primary dealer. “What’s the alternative when you have big foreign exchange reserves? Do you go to the euro which might fall apart at any minute or do you go to the U.S. where, sure we have some deficit problems and the like, but they are quantifiable and known issues.”

Biden Effort

Vice President Joe Biden set a goal of at least $1 trillion in budget cuts from negotiations with congressional leaders on the federal debt as talks turned to Medicare, a contentious issue that risks replicating a partisan divide on Capitol Hill.

Democrats in the meeting yesterday ruled out concessions on Medicare without Republican agreement to raise tax revenue, a step the party’s leaders so far have rejected, according to someone familiar with the talks who spoke on condition of anonymity. Biden underscored the issue in remarks to reporters afterward.

Orders for goods meant to last at least three years fell 3.6 percent, the most since October, after a 4.4 percent jump in March, a Commerce Department report showed today in Washington. Economists projected a 2.5 percent drop in April, according to the median forecast in a Bloomberg News survey.

“The data’s getting quite weak,” said Thomas di Galoma, managing director of U.S. government securities at Oppenheimer & Co. in New York. “Three percent is certainly in the cards, if not lower yields” on 10-year notes.

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Treasury five-year notes rose, pushing yields to almost the lowest this year, after the U.S. $35 billion offering of the securities attracted the strongest demand since 1994.The sale, the second of three note auctions this week totaling $99 billion, drew a yield of 1.813...
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