Dip Buyers Feast at Treasury Auctions as Yields Set 4-Month High
(Bloomberg) -- Bill Gross has said Treasuries offer so little value to investors that they’re equivalent to trash. But there’s no sign of a buyers’ strike at U.S. government bond auctions lately.
Even as Treasuries are heading for their first annual loss since 2013, demand has held firm. Tuesday’s $38 billion sale of 10-year notes drew a yield of 1.584%, below the level dealers expected for a sixth straight time. The last time auction yields stopped through for such a long stretch was in 2015.
Solid demand from end-users at the Treasury’s latest sale left primary dealers taking 11%, the second-smallest ever, following August’s record low of roughly 10%.
Treasuries have been under pressure in recent weeks as surging commodity prices add to inflationary pressures, while central banks including the Bank of England and the Federal Reserve are moving closer to removing pandemic stimulus. Yields on 10-year Treasuries reached about 1.63% Tuesday, the highest since June, while two-year yields hit a level last seen in March 2020.
“The recent back-up in yields seemed to entice buyers rather than put them off,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co.
Gross, who for years managed what was the biggest U.S. bond fund, said in early September that funds investing in Treasuries should be thrown into “investment garbage can.” He predicted that 10-year yields are likely to climb to 2% over the next 12 months, handing investors a loss of roughly 3%.
The 10-year offer followed a more mixed result at Tuesday’s three-year auction.
The combination may suggest that investors favor longer-term debt over shorter-maturities, anticipating the Fed may raise rates sooner or faster to contain inflation over a longer horizon, said Ahrens.
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