The Treasury’s sale of $13 billion in 30-year bonds attracted higher-than-average demand Thursday as international investors sought higher returning securities with European sovereign-debt yields close to historic lows.
The bid-to-cover ratio, which gauges demand by the amount bid with the amount offered, was 2.67, compared with an average 2.4 at the past 10 sales. The difference in 10-year yields versus Group of Seven debt is the highest since 2007. Prices of Treasurys were little changed Thursday after rallying earlier on concern political tensions in the Middle East as intensifying.
“The auction went well,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “Europe is still weak and their low bond yields are pulling on the U.S. and continue to contain yields here, which is providing support. There may be another run in Treasurys, but you don’t want to jump in front of the Fed until you hear what they have to say.”
The 10-year yield was little changed at 2.55 percent as of 5 p.m. New York time, after reaching the highest level since Aug. 1, according to Bloomberg Bond Trader prices. It rose 15 basis points in the previous five sessions.
The current 30-year yield was little changed at 3.28 percent.
The U.S. benchmark 10-year note yielded 86 basis points more than its Group of Seven counterparts, after reaching 87 on Sept. 5, the widest since June 2007.
Indirect bidders, a class of investors that includes foreign central banks, purchased 42.5 percent of the $61 billion of 3-, 10- and 30-year securities sold this week, according to Treasury Department data compiled by Bloomberg. Investors bid $2.91 for every $1 of debt offered, the most since June.
The 30-year debt sold Thursday yielded 3.24 percent, compared with a forecast of 3.267 percent in a Bloomberg News survey of five of the Federal Reserve’s 22 primary dealers.
“We’ve had a good concession of the last week or so, which benefited the auction,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York- based brokerage for institutional investors. “Higher yields brought demand back in. The back end of the curve still presents opportunity.”
The auction was rated a four on a scale of one to five, with five being outstanding, by five primary dealers.
Thirty-year bonds have returned 16 percent this year, compared with a 3.4 percent gain by the broader U.S. Treasurys market, according to Bank of America Merrill Lynch indexes. The long bond lost 15 percent in 2013, versus a 3.4 percent decline by Treasurys overall.
Treasurys rose earlier as concern that political tension in the Middle East will intensify stoked demand for the safest assets.
President Barack Obama said in an address from the White House late Wednesday the U.S. would lead a broad coalition against Islamic State extremists for a “steady, relentless effort” using American air power in support of local forces on the ground.
“Bonds had sold off over the last few days, and Obama’s speech sparked a bit of a safe-haven bid,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “Still, the market is focused on all things Fed, and what message they will deliver next week.”
Pacific Investment Management Co.’s Bill Gross said Treasury 10-year notes are “fairly valued” at 2.5 percent.
The benchmark U.S. security offers “a decent return and not subject, importantly, to a bear market,” Gross said on Bloomberg Television. “That’s based upon our new outlook called ‘new neutral,’ which suggests that the Fed will not raise interest rates to a level that they have historically.”
Gross, manager of the world’s biggest bond fund, has forecast that the long-term policy rate, known as the terminal or neutral rate, will be around 2 percent, or about half of what central bank officials’ forecast.
The Fed has kept its benchmark rate target in a range of zero to 0.25 percent since December 2008 to spur lending and economic growth after the worst recession since the Great Depression.
There’s an 84 percent chance the Fed will raise its benchmark to at least 0.5 percent by October 2015, data based on federal fund futures showed Wednesday.
“The Fed hiking cycle will affect mostly the front-end of the curve,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, a primary dealer. “For those looking to avoid some of that turbulence, the long end provides a fairly significant safe haven.”
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