Sept. 24 (Bloomberg) -- Treasuries gained for a third day after stronger-than-forecast demand at a record $29 billion sale of seven-year notes, the last of three auctions this week totaling $112 billion.
The notes drew a yield of 3.005 percent, compared with a forecast of 3.047 percent in a Bloomberg News survey of four of the Fed’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.79, compared with 2.74 at the previous sale in August and an average of 2.48 at the past seven auctions.
“There has been good demand for the seven-year sector from international investors, and there will continue to be until the beat changes, ” James Combias, New York-based head of Treasury trading at Mizuho Securities USA Inc., said before the offering. Mizuho is one of the 18 primary dealers required to bid at Treasury sales.
The existing seven-year note yield fell five basis points to 2.98 percent at 1.03 p.m. in New York, according to BGCantor Market Data.
Indirect bidders, a class of investors that includes foreign central banks, bought 61.7 percent of the notes, compared to 61.2 percent at the August offering and the seven- sale average of 46.2 percent.
Government securities rose earlier as purchases of existing homes dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008.
Housing ‘Volatility’
“We are still losing jobs and there is volatility in housing,” said Brian Edmonds, head of interest rates at primary dealer Cantor Fitzgerald LP in New York. “A lot of people are getting out of risky assets and into Treasuries. There will continue to be good demand for Treasuries.”
Today’s offering of seven-year notes follows a record $40 billion five-year note auction yesterday and a $43 billion auction of two-year securities on Sept. 22.
Yesterday’s five-year sale drew weaker-than-forecast demand, with a yield of 2.47 percent versus the 2.463 percent in a Bloomberg survey. The two-year sale on Sept. 22 drew the strongest demand in two years.
The central bank today said it will shrink its unprecedented emergency programs that auction loans to commercial banks and Treasury securities to bond dealers, citing “continued improvements” in financial markets.
‘Exceptionally Low’
Fed Chairman Ben S. Bernanke and fellow policy makers indicated yesterday for the first time since August 2008 that the economy is accelerating, even as they recommitted keeping their benchmark interest rate “exceptionally low” for an “extended period.”
“Substantial resource slack” and stable long-term inflation expectations mean that the policy committee “expects that inflation will remain subdued for some time,” policy makers said in their statement. Inflation erodes the value of a bond’s fixed payments.
The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, was 1.82 percentage points, below the five-year average of 2.19 percentage points.
Fed officials also said they’ll end a $1.45 trillion mortgage-bond purchase program later than scheduled. The Fed has bought about $862 billion of its $1.25 trillion agency mortgage- backed securities program. Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006.
Group of 20
The number of Americans filing first-time claims for jobless benefits fell by 21,000 to 530,000 in the week ended Sept. 19, a Labor Department report showed today.
Investors speculate leaders from the Group of 20 nations will reiterate their message that the economic recovery remains weak. The meeting will start at 6 p.m. in Pittsburgh, when President Barack Obama hosts a dinner for the leaders, and concludes at about 4 p.m. tomorrow with a statement and press conferences.
Ten-year yields will be between 3.25 percent and 3.5 percent through month-end, he said.
The yield will rise to 3.60 percent by Dec. 31, according to a Bloomberg survey of banks and securities companies with the most recent forecasts given the heaviest weightings.
Over the past three months, returns totaled 1 percent for two-year notes, 3.1 percent for seven-year debt and 2.7 percent for 10-year Treasuries, according to indexes compiled by Merrill Lynch & Co
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