Investors showed up in force for the US$90 billion in notes auctioned this week by the Treasury Department amid a rebound in yields and pervasive negative rates in Europe.
As traders ponder the timing for the Federal Reserve's first interest-rate increase since 2006, America's government debt yields have risen by as much as about a half a percentage point from lows reached in January. That comes as more than $1 trillion of sovereign bonds have negative yields in overseas debt markets.
The Treasury's sale of two-, five-, and seven-year debt each came at the highest auction yield in 2015. Bidding levels for this week's debt, as well as the month overall, were the strongest since February.
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"Higher yields are attracting both overseas and domestic buyers," said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. "Compared to other investable alternatives in Europe and overseas, the fact that the U.S. dollar is retaining most of its strength and we continue to have comparatively higher yields is another check in the column of attractiveness for our auctions."
Thursday's sale of $29 billion in seven-year notes produced a yield of 1.888 percent. The sale was rated a '4' by four of the Federal Reserve's 22 primary dealers, based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.
Treasury Auction Detail
The auction Thursday followed two in the prior two days of $35 billion of five-year notes at 1.560 percent and the $26 billion two-year notes at 0.648 percent. The bid-to-cover ratio for the two-, five-, and seven-year note offerings was 2.74, up from 2.66 in March and the most since February.
In the five-year sale, indirect bidders—a class of investors that includes foreign central banks—bought 58.5 percent of the notes, compared with the average of 56.3 percent at the past 10 offerings. For seven-year notes, this class of bidders bought 23.8 percent.
The Treasury received 2.83 times the number of bids for the $180 billion in debt sold this month, up from 2.79 times in April, and the most since February. U.S. 10-year yields are higher than comparable securities issued by 18 other developed nations, according to data compiled by Bloomberg.
–With assistance from Daniel Kruger in New York.
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