WASHINGTON – Treasury notes remained higher after the U.S. sale of $24 billion in 10-year notes drew a record low auction yield.
The securities were sold at a yield of 1.855 percent, compared with a forecast of 1.853 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers.
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The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.90, compared with an average of 3.11 for the previous 10 sales.
Treasuries yields fell earlier below 1.8 percent for the first time since February as Greek politicians struggled to form a government, adding to concern that Europe’s financial turmoil is deepening.
“Any concerns about relative value and things like that are taking a back seat to the larger risk-off issue as investors just want safety, despite the rich levels,” Michael Cloherty, head of U.S. interest-rate strategist at Royal Bank of Canada’s RBC Capital Markets unit in New York, one of the primary dealers obligated to bid at the auctions, said before the sale.
The yield on the current 10-year note fell one basis points, or 0.01 percentage point, to 1.83 percent, at 1:04 p.m. in New York, according to Bloomberg Bond Trader prices.
Indirect bidders, an investor class that includes foreign central banks, purchased 38.7 percent of the notes, compared with an average of 41.9 percent for the past 10 sales.
Direct bidders, non-primary dealer investors that place their bids directly with the Treasury, purchased 15.9 percent of the notes, compared with an average of 14.5 percent at the last 10 auctions.
The U.S. is scheduled to auction $16 billion of 30-year bonds tomorrow.
This week’s sales will raise $35.3 billion of new cash as maturing securities held by the public total $36.7 billion, according to the U.S. Treasury.
Treasuries have returned 0.6 percent this year, including reinvested interest, Bank of America Merrill Lynch indexes show. They gained 9.8 percent in 2011 as the European financial turmoil deepened.
A stand-off between Greek politicians since inconclusive elections on May 6 has reignited concern the nation will be unable to meet the terms of the two bailouts it has negotiated since May 2010.
With parliament split, the country at the center of the debt crisis is again facing the risk of leaving the euro.
Europe’s Debt
Spanish 10-year bond yields rose above 6 percent today for the first time since April 27, and Italy’s securities declined as the turmoil infected the region’s larger nations.
German 10-year bund yields dropped below 1.50 percent for the first time since Bloomberg began collecting the data in 1989. The yield slid as much as four basis points to 1.498 percent.
The two-year swap spread, an indicator of risk in the financial system, rose two basis points to 33.83 basis points, the widest spread since January.
“The last two days give the appearance of being more of a fundamental move to recognize the tangible reality of systemic risk — not just fear or uncertainty things might deteriorate,” Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, wrote in a client note.
Valuation measures show Treasuries are near the most expensive levels ever.
The term premium, a model created by economists at the Fed, touched negative 0.78 percent, close to the most expensive level ever of 0.79 percent reached on Feb. 2. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
