U.S. Treasuries fell Wednesday after the government’s auction of 2-year notes drew fewer bids from foreign investors than last month’s sale, raising concern that overseas buyers might be pulling back from government securities.
Indirect bidders, the class of investors that includes foreign central banks, were awarded 29.3 percent of the auction, down from 52.2 percent in February. The $18 billion of notes were sold at a 4.51 percent yield, lower than the 4.52 percent forecast in a Bloomberg survey and down from 4.83 percent at the 2-year auction in February.
“We have been relying on foreign investors the last few years to buy our bonds and keep interest rates lower than they would have been,” said Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “Indirect bids were on the low side.”
The yield on the benchmark 10-year note rose 1 basis point, or 0.01 of a percentage point, to 4.62 percent Wednesday.
“Because foreign central banks would typically bid as indirect bidders, when the indirect bid lags, that’s often taken as less than positive,” said John Canavan, a fixed-income analyst in Princeton, N.J., at Stone & McCarthy Research Associates.
Some investors may have sold Treasuries after Federal Reserve Chairman Ben Bernanke suggested consumer spending will help alleviate some of the drag from the housing market on the economy, said Michael Cheah, a bond manager at AIG SunAmerica Asset Management in Jersey City.
Bernanke told Congress’ Joint Economic Committee that the economy “appears likely to continue to expand at a moderate pace over coming quarters.”
Commenting publicly for the first time since the Federal Open Market Committee on March 21 surprised investors by removing its bias toward higher interest rates, Bernanke said the central bank had been seeking more “flexibility” to address risks to economic growth, which are increasingly balanced.
The Fed kept its benchmark rate unchanged on March 21 at 5.25 percent.
Investors have been selling longer-dated securities and buying shorter-term notes following the Fed’s shift in tone, said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment-banking arm of Canada’s biggest lender.
The Fed “opened the door up to the understanding there is some downside” to the economic outlook, Tucci said. “That’s what the market’s reflecting in the yield curve.”
Treasuries gained earlier after a government report showed orders for goods made to last several years gained 2.5 percent last month, following a revised 9.3 percent drop in January. Economists surveyed by Bloomberg expected an increase of 3.5 percent.
