U.S. 7-year may yield record low at auction

Posted 4/26/12

NEW YORK - The Treasury Department’s $29 billion sale of seven-year notes may draw a record low yield of 1.357 percent, according to the average forecast in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers.

The securities, which mature in April 2019, yielded 1.35 percent in pre-auction trading. Bids are due by 1 p.m. New York time. The notes drew a yield of 1.59 percent at the March sale, two months after selling at a record low yield of 1.359 percent at the January auction.

The size of today’s offering is the same as at the past 21 sales of the maturity after peaking at $32 billion in auctions from November 2009 to April 2010.

The March 29 sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.72, versus an average of 2.81 for the past 10 auctions.

Indirect bidders, an investors class that includes foreign central banks, bought 42.8 percent of the notes at the March auction, the most since the August offering and compared with an average of 39.7 percent for the past 10 sales.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 13.4 percent of the notes at the last offering, after purchasing 19.3 percent the month before, the most since sales of the maturity resumed in 2009, and compared with the 10-auction average of 13.1 percent.

Third of Three

Treasuries maturing in seven years have returned 0.7 percent this year after returning 14 percent in 2011, according to Bank of America Merrill Lynch indexes. The overall Treasury market has fallen 0.05 percent this year after gaining 9.8 percent in 2011.

Today’s offering is the third of three U.S. note auctions this week totaling $99 billion. The Treasury sold $35 billion of five-year debt yesterday at a yield of 0.887 percent, and the same amount of two-year securities on April 24 at 0.27 percent.

This week’s note offerings combined with the April 19 auction of $16 billion in five-year Treasury Inflation Protected Securities will raise $56.7 billion of new cash, as maturing securities held by the public total $58.3 billion.

The Fed’s primary dealers trade government securities with the central bank and are obligated to participate in Treasury auctions.

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