Treasury Bonds: $32 Billion in 3-Year Notes Auctioned
U.S. Treasury suffered losses after the auction of $32 billion dollars in three-year bonds brought the lowest yield since the first note sale in May 1981.
This is the first Treasury note auction since Standard & Poor’s downgrade of the U.S. top notch rating from AAA to AA+.
The Treasury sold $32 billion in three-year notes on Tuesday. Prices of the U.S. government bonds extended losses when stocks rose and cut losses when stocks shaved gains.
“The bond market is reacting to the bounce-back in stocks,” Justin Hoogendoorn, fixed income strategist of BMO Capital Markets in Chicago, told Reuters.
The notes yielded revenue of 0.50 percent and the bid-to-cover ratio, which measures demand by comparing total bids to the number of securities offered, was 3.29. Ten of the past bond sales had an average of 3.15.
“The market was a little cheaper going into the auction and it, combined with the global growth concerns, made for a large bid from the broader investment community,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 main dealers obligated to participate in U.S. debt offerings, reported Bloomberg.
Indirect bidders, which include foreign central banks, bought 47.9 percent of the Treasury notes. Non-primary-deal investors that place their bid directly with the Treasury, direct bidders, purchased 11.1 percent of the bonds – compared to an average of 13.2 percent over the past ten auctions.
The bonds drew a yield of 0.67 percent last month.
This is the first sale in a three-part refunding which includes $24 billion worth of 10-year notes sale on Wednesday and a sale of 16 billion in 30-year bonds on Thursday.
The benchmark 10-year note dropped 24/32, with a 2.40 percent yield. This decrease erased one-third of Monday’s gain and the bond is at its lowest level since January 2009.
“Yield is tough to come by,” Gary Shilling told Bloomberg Surveillance. He predicted, “Yields are low because the U.S. is a safe haven.”
