By Dakin Campbell
May 7 (Bloomberg) — Treasury 30-year bonds fell the most in about four months as investors demanded higher-than-forecast yields at today’s auction of $14 billion of the securities with the U.S. slated to sell a record amount of debt this year.
“This is a problem,” said Chris Ahrens, head interest- rate strategist at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid in Treasury auctions. “The market required a fairly significant discount to buy the bonds.”
Yields on the securities climbed to a six-month high as the bond auction drew a yield of 4.288 percent, higher than the average forecast in a Bloomberg News survey of seven bond- trading firms for a yield of 4.192 percent. Demand was below average, judging by total bids.
The benchmark 30-year bond yield climbed 16 basis points, or 0.16 percentage point, to 4.26 percent at 1:22 p.m. in New York, according to BGCantor Market data. The 3.5 percent security due in February 2039 dropped 2 18/32, or $25.63 per $1,000 face amount, to 87 10/32. The 10-year note yield increased nine basis points to 3.28 percent.
The auction’s so-called bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.14, compared with an average of 2.24 at the past 10 sales of the maturity. Thirty-year bonds yielded 3.64 percent at the last sale, on March 12.
Today’s auction began the Treasury’s monthly sales of the so-called long bond, up from quarterly offerings at the end of last year. That means the government will boost sales of the security from $35 billion in 2008 to $120 billion this year, according to Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of the 16 primary dealers that trade with the central bank and are required to participate in Treasury auctions.
The yield on the benchmark 30-year bond reached 4.2820 percent, the most since Nov. 14, while the 10-year yield touched 3.3005 percent, the highest since Nov. 25.
“Treasuries are getting more attractive here,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. If 10-year note yields rose to 3.3750 percent, it would be “a good entry point for a short-term trade,” he said.
Initial claims for jobless benefits decreased by 34,000 to 601,000 in the week ended May 2, the fewest since late January, the Labor Department said in Washington. The median forecast in a Bloomberg News survey was for 635,000 claims. A separate report tomorrow may show employers cut 600,000 jobs in April, fewer than the 663,000 they eliminated in March.