Longer-term Treasurys rose after the government sold $42 billion of two-year notes at the lowest yield on record as concern Europe's debt crisis is spreading boosted the refuge appeal of U.S. securities.
The securities sold yielded 0.769 percent, compared with a forecast of 0.762 percent in a Bloomberg News survey of nine of the Federal Reserve's 18 primary dealers. The previous record low yield at a two-year auction was 0.802 percent in November 2009. Treasury 10-year yields earlier touched their lowest in more than a year earlier as stocks slid and the euro slipped.
“It was a fair auction,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities in New York. “It's the easiest of the three to absorb. Based on the economic recovery, the 2-year note has little value under 1 percent.”
The yield on the current two-year note rose less than 1 basis point to 0.73 percent at 1:19 p.m. in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note fell 5 basis points to 3.14 percent. A basis point is 0.01 percentage point.
The bid-to-cover ratio at today's auction, which gauges demand by comparing the amount bid with the amount sold, was 2.93, versus an average of 3.08 for the previous 10 sales. The security yielded 1.024 percent at its last sale, a $44 billion offering on April 27.
Indirect bidders, an investor class that includes foreign central banks, purchased 36.2 percent of the notes, compared with an average of 41.4 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 15.2 percent of the notes, compared with 21.4 percent at the last sale and an average of 12.4 percent at the last 10 auctions.
Today's offering is the first of three note auctions this week totaling $113 billion. The Treasury is scheduled to sell $40 billion in 5-year debt tomorrow and $31 billion of 7-year notes on May 27.
President Barack Obama and Congress have increased U.S. marketable debt to a record $7.9 trillion to fund spending programs.
Benchmark sovereign bonds also gained today, sending the German 10-year bund yield to a record low, amid concern the European debt crisis is worsening as and tensions tightened between the Koreas.
The International Monetary Fund urged Spain to take more steps to overhaul ailing banks. North Korea said it will sever all ties with South Korea “punishment” for accusing it of sinking a warship and killing 46 South Korean sailors.
“There's a lot of uncertainty happening in the world,” said Theodore Ake, head of Treasury trading at Societe Generale in New York. “There's quite a bit of panic.”
Treasury note investors were bullish this week for the first time in 2010, according to a weekly sentiment index based on a poll of clients by JPMorgan Chase & Co. The gauge rose to 4, the first positive reading since December.
U.S. securities pared gains as the Conference Board's confidence index rose to 63.3 this month, the highest level since March 2008, from a revised 57.7 in April, figures from the New York-based private research group showed. The gauge was forecast to rise to 58.5, according to a Bloomberg survey.
“The stronger-than-expected economic data is at odds with what's taking place overseas,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “We retreated a bit on that. It's a give-and-take situation.”
German 10-year bund yields earlier dropped as much as 9 basis points to touch 2.56 percent, a record low. Yields on two- year gilts dropped to 0.84 percent, near a six-month low.
The euro slid 0.8 percent to $1.2276, near a four-year low of $1.2144 set May 19. The Stoxx Europe 600 Index dropped 2.5 percent, and the Standard & Poor's 500 Index fell 1.9 percent.
U.S. stocks trimmed losses after St. Louis Fed President James Bullard said “minimal” use of a funding agreement with the European Central Bank indicates markets don't face the same stress as they did in 2008 and 2009.
Treasurys have returned 2 percent this month, the most since a 2.3 percent gain in March 2009,
Bank of America Merrill Lynch indexes show. Concern that the region's economy will slump as the European Union tries to head off the Greek debt crisis helped send the U.S. 10-year note yield tumbling from the 2010 high of 4.01 percent it reached on April 5.
