Treasuries drop as 3-year auction draws highest yield since 2011
By Daniel Kruger and Susanne Walker Bloomberg News
NEW YORK - Treasuries fell a third day as the United States sold $28 billion of three-year securities at the highest yield since May 2011 amid signs the economic expansion is strengthening.
Yields on current three-year notes rose to a three-month high as small-business optimism rose to the highest level since before the worst recession since the Great Depression, adding to speculation the Federal Reserve will start raising interest rates next year. Goldman Sachs Group Inc. said it sees yield spreads between U.S. government bonds due in more than five years and their euro-area counterparts compressing. The U.S. plans to sell $21 billion of 10-year securities Wednesday and $13 billion in 30-year bonds on June 12.
“Between the upcoming Fed meeting and supply considerations later this week, not to mention a generally bearish trend for the Treasury market overall, ambition to add exposure to front-end Treasuries has been muted,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Conn.
Three-year yields rose three basis points, or 0.03 percentage point, to 0.89 percent at 1:17 p.m. New York time after touching 0.89 percent, the highest since May 8, according to Bloomberg Bond Trader data. The 0.875 percent note due in May 2017 fell 3/32, or 94 cents per $1,000 face amount, to 100 31/32.
Benchmark 10-year yields climbed four basis points to 2.64 percent, rising for a third day and an eighth day in nine. They touched 2.65 percent, the highest since May 13, and have gained from 2.4 percent on May 29, the lowest level since June 2013.
The Bloomberg Global Developed Sovereign Bond Index has returned 3.9 percent this year, compared with a loss of 4.6 percent in 2013.
The three-year notes sold Tuesday yielded 0.930 percent, compared with a forecast of 0.924 percent in a Bloomberg News survey of eight of the Federal Reserve’s 22 primary dealers.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.41, versus 3.4 at the last sale.
Indirect bidders, an investor class that includes foreign central banks, purchased 26.5 percent of the notes, compared with an average of 33.6 percent at the past 10 sales. Direct bidders, non-primary-dealer investors that place bids directly with the Treasury, purchased 19.4 percent, compared with an average of 18.8 percent at the past 10 auctions.
Three-year notes have returned 0.5 percent this year, compared with a gain of 2.6 percent by the broader Treasuries market, according to Bank of America Merrill Lynch indexes. The three-year securities lost 0.1 percent in 2013, while Treasuries overall fell 3.4 percent.
The sales will raise $30 billion of new cash, as maturing securities held by the public total $32 billion, according to the U.S. Treasury.