By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices extended a drop Wednesday after a disappointing 7-year note auction showed the weakest demand for such a sale since 2009.
The benchmark 10-year note 10_YEAR +1.92% yield, which rises as prices fall, rose 5.5 basis points on the day to 2.766%. The 30-year bond 30_YEAR +0.87% yield rose 3 basis points to 3.833% and the 5-year note 5_YEAR +5.85% yield rose 4.5 basis points to 1.390%.
The Treasury Department sold $29 billion of 7-year notes 7_YEAR +2.89% at a yield of 2.106%, higher than where the broader market was trading at the time. The ratio of bidders to the amount of debt sold was 2.36 times, below the average of 2.57 times in the last six sales, and the lowest ratio since May 2009, according to Stone & McCarthy Research Associates.
Indirect bidders, which can include foreign investors, bought 34.1% of the sale, compared to 43.5% in recent auctions. Direct bidders, which can include domestic money managers, bought another 16.1%, compared to an average of 19.5%.
The sale completes a trio of auctions this week totaling $96 billion, which came to market amid a rise in long-term Treasury yields. That’s the result of an effort by the Federal Reserve to shift market attention away from its bond-buying stimulus program, which is likely to be wound down in the next few months, and toward its commitment to keeping short-term policy rates low.
The resulting selloff in longer-term Treasurys may have cut into demand for the 7-year auction. “The drop in demand was much about the Fed’s recent wave of forward guidance,” said Adrian Miller, director of fixed-income strategy at GMP Securities LLC, in a note.
Nomura Securities gave the auction a grade of C.
Treasurys turned lower after the Chicago purchasing managers’ index fell to 63 in November after climbing to its highest level since early 2011 in the previous month. Nonetheless, the reading beat the expectations of economists polled by MarketWatch, who predicted a reading of 59.
In other economic data, the number of people applying for unemployment benefits dropped by 10,000 to 316,000, beating the expectations of MarketWatch-polled economists, who predicted a rise to 330,000. The monthly average of claims also fell to 331,750.
Durable-goods orders, a measure of business investment, dropped by 2% in October, mainly due to declines in orders of jumbo jets. Though economists had expected a larger 2.2% drop, the data could indicate slower economic growth in the months ahead.
“Either you can write off the report due to the impact of the government shutdown or believe business spending remains very lackluster with CEOs not interested in ramping up the business investment cycle that has been absent during the current recovery,” said Miller, in a note. He added that he believes the latter to be true.
Ben Eisen is a MarketWatch reporter based in New York.
