NEW YORK, July 24: U.S. Treasuries prices stayed down, and briefly extended losses, on Wednesday after the Treasury had low demand for the $35 billion in new five-year debt it sold, despite a pick up in the allocation of the notes to fund managers.
The bid-to-cover ratio for the new notes was 2.46, equal to the June auction, which was the lowest since September 2009. But indirect bidders, which includes real money accounts and some central banks took 53.9 percent of the supply, the biggest share since November 2009.
‘Today’s auction was pretty decent given the strong indirect bid, but the bid-to-cover was a bit low so I think the market took that as a negative,’ said Dan Mulholland, managing director in Treasuries trading at BNY Mellon in New York.
Treasuries were down before the auction as economic data pointed to a surprising expansion in the euro zone’s private sector, sending U.S. Government debt lower in concert with German government bonds.
Private industry in the euro zone expanded for the first time in more than a year in July, with a jump in Markit’s ‘flash’ Eurozone Composite PMI to 50.4.
U.S. Housing data also showed strength with sales of new U.S. single-family homes vaulting to a five-year high in June.
‘The housing sector of the economy is better than we thought,’ said Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ in New York.
Durable goods data for June on Thursday will now be watched for further signs regarding the strength of the U.S. Economy.
Benchmark 10-year notes were last down 22/32 in price to yield 2.60 percent, the upper end of their recent range and the highest since July 15. They are up from around 2.48 percent on Monday, but remain lower than the two-year high of 2.76 percent reached on July 8.
The U.S. Treasury will sell an additional $29 billion in seven-year notes on Thursday, the final leg in this week’s $99 billion in coupon-bearing supply.
Demand for these notes may be tested as they are seen as relatively less attractive than the five-year debt, and are more sensitive to the Fed raising interest rates in the intermediate-term.
Seven-year notes were last down 19/32 in price to yield 1.99 percent. Traders expect the new notes to yield three basis points higher at around 2.02 percent, according to trading in the ‘when-issued’ market.
The Fed bought $1.47 billion of bonds due from 2036 to 2043 on Wednesday as part of its ongoing purchase program. It will purchase between $4.25 billion and $5.25 billion in debt due 2017 and 2018 on Thursday.
(agencies)
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