- Registration time
- Last login
- Online time
- 59 Hour
- Reading permission
July 29 (Bloomberg) -- Treasuries fell for a second day after the government’s record $39 billion auction of five-year notes drew a higher-than-forecast yield, renewing concern the deluge of U.S. debt being sold will overwhelm investor demand.|
The notes drew a yield of 2.689 percent, compared with a forecast of 2.635 percent in a Bloomberg News survey of eight of the Federal Reserve’s primary dealers. Indirect bidders, a class of investors that includes foreign central banks bought 36.7 percent of the notes, down from 62.8 percent of the securities at the June sale, the highest since December 2004.
“You’re starting to see customers pull back from the market,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “It’s been a fundamental shift in central bank buying.”
The yield on the benchmark 10-year note rose two basis points to 3.72 percent at 1:16 p.m. in New York, according to BGCantor Market Data. The yield climbed to 3.76 percent on July 27, the highest level since June 22.
The existing five-year note yield rose eight basis points to 2.68 percent, after dropping as low as 2.55 percent.
The sale is the biggest offering of the notes since the Treasury began issuing five-year notes in 1953, according to the Department’s Bureau of the Public Debt. Last month’s $37 billion sale of the securities was the previous record.
The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered was 1.92, compared with an average of 2.2 at the last 10 auctions. It was the third of four auctions totaling $115 billion that is the largest amount of so-called coupon securities sold in a single week.
At the June 24 auction, the notes drew a yield of 2.7 percent, the highest since October. The so-called bid-to-cover ratio was 2.58 last month, the highest since October 2007. The average indirect bid for the past 10 auctions is 36.8 percent.
The five-year note sale will be followed by a $28 billion offering of seven-year securities tomorrow. The government sold $42 billion of two-year debt yesterday and $6 billion of 20-year Treasury Inflation Protected Securities on July 27.
The U.S. raised $1.02 trillion this year selling Treasury securities to help finance a recovery from the recession, government data show. In its next round of auctions, the U.S. will sell three-, 10- and 30-year securities on three consecutive days beginning Aug. 11.
Goldman Sachs Group Inc. said the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010, cutting its estimate for Treasury auctions by 28 percent, as the economy improves.
President Barack Obama will sell a net $1.9 trillion of debt in the current fiscal year that ends Sept. 30, Goldman said in its report late yesterday. In March it forecast $2.7 trillion. Goldman, also a primary dealer, trimmed its projection for sales the next fiscal year to $1 trillion from $1.35 trillion, wrote Ed McKelvey, senior U.S. economist in New York.
The report “has helped 10s and bonds,” said William O’Donnell, U.S. government bond strategist at primary dealer RBS Securities Inc. in Stamford, Connecticut. “To the extent that the supply story is not going to be bad, I would think that’s a positive for longer-term Treasuries.”
The U.S. federal deficit will be $1.725 trillion for this fiscal year and $1.4 trillion in the following 12 months, McKelvey wrote. In March, Goldman estimated the figures at $1.86 trillion and $1.5 trillion.
‘Certainly a Concern’
Two-year notes fell yesterday after the debt sold at a higher-than-forecast yield. Indirect bidders bought 33 percent of the notes, compared with 68.7 percent at the June auction, the most in at least six years.
“The lack of indirect bid was certainly a concern for the front-end,” said Dan Orlando, head of U.S. government bond trading at primary dealer Deutsche Bank Securities Inc. in New York.
The difference in yield, or spread, between two- and 10- year notes fell to as low as 2.53 percentage points, the narrowest in two weeks.
The Fed has bought $222.719 billion in U.S. debt since its purchases began on March 25. The central bank the Fed is scheduled to buy notes due from May 2012 to November 2013.
Treasuries lost 0.5 percent this month, compared with a 0.3 percent advance for German government bonds, according to Merrill Lynch & Co. indexes.
The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.52 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II. The government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets.
If China uses its USD in the global markets now, it will lead to hyper inflation and the death of the US Economy!