U.S. to sell 7-year notes, maybe at lowest yield ever
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices gained on Thursday, pushing yields down, as weak economic data in the U.S. and Europe made bonds more attractive if global growth slows.
Yields on 10-year notes 10_YEAR -1.91% , which move inversely to prices, fell 4 basis points to 1.95%. A basis point is one one-hundredth of a percentage point.
Yields on 5-year notes 5_YEAR -6.27% fell 6 basis points to 0.83%.
The Labor Department said the number of Americans who filed first-time requests for jobless benefits was little changed in the latest week at 388,000, near their highest level of the year. See more on jobless claims.
“A higher-than-expected figure and the highest since January is giving the market a bit of a goose following up on earlier, subdued, strength,” said David Ader, head of government bond strategy at CRT Capital Group.
Supporting bonds before the U.S. report was weak confidence data out of Europe.
“This is a tense time for Treasurys as weakening growth and financial conditions in Europe meet overbought Treasury prices and investors who see no meat on the bone in safe-haven assets,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
On Wednesday, Treasury bonds got pushed around by the Federal Reserve Open Market Committee’s post-meeting policy statement, updated forecasts and Chairman Ben Bernanke’s press conference.
The forecasts were interpreted as more positive on the economy and therefore hawkish on the interest-rate outlook. But that was reversed when Bernanke said the U.S. central bank is prepared to take more action if it’s deemed appropriate. Read about bonds, Fed.
Seven-year auction
That’s likely to weigh on demand at the Treasury Department’s sale of $29 billion in 7-year notes 7_YEAR -2.63% , said George Goncalves, head of U.S. rates strategy at Nomura Securities. The auction closes at 1 p.m. Eastern time, and is the last auction of the week.
The current 7-year yield is trading at 1.33%, down 4 basis points on the day.
If the new securities price at that level, it would be the lowest level on record.
Intermediate and longer-dated debt has been the biggest beneficiary of the Fed’s current bond-buying program, known as Operation Twist. Since the Fed gave no hints of continuing that program past its expected end in June, that could reduce traders’ interest in the auction, analysts said.
“The FOMC was more hawkish than the market expected, and the press conference started the unwind process for Twist,” Goncalves wrote in a note. “We expect this momentum to continue slowly, as the market looks to price in life without continuous Fed purchases, and therefore look for weak demand for 7-year notes.”
At the last four auctions of 7-year notes, bidders have offered to buy an average of 2.81 times the amount of debt sold, according to CRT. See recent Treasury auction results.
Indirect bidders, a group which includes foreign central banks, bought 39.6%, on average.
Direct bidders, a group which includes domestic money managers, purchased another 14.3% on average.
Earlier this week, the government sold 5-year notes and 2-year debt 2_YEAR -1.46% .
Deborah Levine is a MarketWatch reporter, based in New York.
