from Bloomberg:
By Susanne Walker and Dakin Campbell
June 11 (Bloomberg) -- Treasuries gained as the highest yield on a 30-year U.S. bond auction in almost two years attracted investors concerned that record government spending and debt sales will lead to inflation.
“At 4.7 percent, 30-year Treasuries are compelling,” said Nils Overdahl, a bond-fund manager at New Century in Bethesda, Maryland, which oversees $500 million. “You are really picking up a lot.”
The bonds drew a yield of 4.72 percent at the auction, the highest since August 2007. Benchmark 10-year note yields reached 4 percent earlier for the first time since October on concern the budget deficit and a falling dollar will prompt investors to reduce holdings of U.S. debt.
The yield on the 10-year note fell 11 basis points, or 0.11 percentage point, to 3.84 percent, after climbing as high as 4.0038 percent, at 1:19 p.m. in New York, according to BGCantor Market Data. The yield last touched 4 percent on Oct. 16. The 3.125 percent security maturing in May 2019 rose 27/32, or $8.44 per $1,000 face amount, to 94 3/32.
Eight bond-trading firms surveyed by Bloomberg News had forecast a yield of 4.80 percent. The sale is a reopening of the $14 billion 30-year bond auction on May 7, which drew a yield of 4.288 percent.
Thirty-Year Auction
The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold, was 2.68. It was 2.14 last month and has averaged 2.21 at the past 10 scheduled sales.
Indirect bidders, a class of investors that includes foreign central banks, bought 49 percent of the notes, up from 33 percent in May. The average at the past 10 scheduled auctions is 25.2 percent.
Treasuries tumbled 6.5 percent so far this year, the worst performance since Merrill Lynch & Co. began tracking returns in 1978, as so-called bond vigilantes drove up yields to punish President Barack Obama for quadrupling the budget shortfall to $1.85 trillion and raising the risk of inflation. Ten-year notes rose as the highest yields in seven months lured investors.
“Clearly the supply issue is having a far-reaching impact,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion of assets. “Virtually all can be attributed to the supply issue. The economic data has not been that bond bearish.”
Borrowing Costs
The rise in yields is undermining Federal Reserve Chairman Ben S. Bernanke’s efforts to cap consumer borrowing costs and pull the economy out of the worst recession in five decades.
Ten-year yields have risen over 140 basis points since the Fed announced its $300 billion, six-month Treasury purchase program on March 18. The average 30-year mortgage rate jumped to 5.59 percent from 5.29 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today in a statement. The 15-year rate averaged 5.06 percent.
