Justin Lederer Comments: Treasuries Advance After $29 Billion Seven-Year Note Auction
August 27, 2010, Bloomberg Businessweek
Treasuries gained after the U.S. sold $29 billion of seven-year debt in the last of four note and bond auctions this week totaling $109 billion.
“The seven-year auction went well as there is still demand for Treasuries and safety,” said John Briggs, an interest-rate strategist in Stamford, Connecticut, at Royal Bank of Scotland Plc, which as a primary dealer is obligated to participate in Treasury auctions.
The yield on the current seven-year note dropped 3 basis points, or 0.03 percentage point, to 1.95 percent at 1:15 p.m. in New York, according to BGCantor Market Data.
Indirect bidders, an investor class that includes foreign central banks, purchased 56.7 percent of the notes, compared with 42.3 percent in July and an average of 50.4 percent for the past 10 sales. Direct bidders, non-primary dealers that purchase directly from the Treasury, bought 8.6 percent at the auction, compared with 9 percent in July.
‘Drive the Market’
“Uncertainty and fear continue to drive the market,” Justin Lederer, an interest-rate analyst in New York at the primary dealer Cantor Fitzgerald LP, wrote in a note to clients before the auction.
Treasury notes maturing in five to seven years have returned 10.5 percent this year as of yesterday, compared with an 8.4 percent gain for the broader U.S. debt market, according to Bank of America Merrill Lynch indexes.
The government sold $37 billion in two-year debt on Aug. 24 at a record low yield of 0.498 percent and $36 billion in two- year debt yesterday at an all-time auction low of 1.374 percent.
U.S. growth will be “well below” 1 percent in the third quarter, and there is a 40 percent chance of a renewed recession, Nouriel Roubini, the New York University economist who predicted the financial crisis, said via e-mail yesterday.
Jobless Claims
In an attempt to bolster the economy, Fed policy makers said on Aug. 10 that the central bank would maintain its holdings of securities at $2.05 trillion to prevent money from draining out of the financial system.
The Fed bought $1.415 billion of Treasuries today as part of a program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system.
