Bond prices rise after well-bid 7-year auction

By Ellen Freilich

NEW YORK (BestGrowthStock) – U.S. Treasuries scored modest gains on Thursday after an auction of seven-year notes, the last such sale of the week, drew solid demand.

The Treasury sold $29 billion in seven-year notes at a high yield of 1.989 percent, 0.7 basis point below the 1 p.m. EDT (1700 GMT) when-issued bid.

The ratio of bids received to those accepted was “a solid improvement over last month and tied for the second highest coverage in the issue’s history since February 2008,” said Thomas Simons, vice president and money market economist at Jefferies & Co in New York. The bid-cover ratio was 2.98.

Indirect bidders took $16.36 billion, or 56.7 percent, of the issue, the strongest bid since April. In contrast, primary dealers took $10.03 billion, or a below average 34.8 percent.

Direct bids declined for the fourth straight month, though the 8.6 percent takedown was still marginally above the average since June 1, 2009, Simons said.

“The buyside interest in this auction – huge after the June 2009 change in bidder classification rules gave foreign bidders a strong appetite for the issue – had cooled off in recent months, but came back strong today,” Simons said.

“As yields have eroded in recent months, investors are moving out the curve,” he said.

“Since the seven-year note offers some 60 basis points (in yield) against five-year notes, it seems a logical place to go,” Simons said.

ECONOMY DOUBTS, BERNANKE SPEECH

Earlier, long bonds gave up gains of almost a point in price after new claims for U.S. unemployment benefits fell more than expected. But benefit claims remained at elevated levels and bonds stopped short of a deeper correction some say is looming.

The data left unresolved the debate over whether bonds are overpriced, or if the faltering U.S. recovery will underpin U.S. government debt until economic indicators begin to improve consistently, particularly the hard-hit labor market.

The labor market data, which showed a fall in new jobless claims by 31,000 to 473,000 last week, was hardly a good economic report, and the bond market reaction said more about people’s positions and worries that debt prices are due for a correction lower.

The 30-year long bond was last up 12/32 in price, yielding 3.56 percent, compared with Wednesday’s close of 3.57 percent.

Analysts said resistance lay at 3.51 percent and support at 3.82 percent.

The benchmark 10-year Treasury note was up 4/32 in price, its yield easing to 2.53 percent from Wednesday’s close of 2.54 percent.

Analysts now say resistance in 10-year notes is in the area of 2.44-2.46 percent while support is at 2.67 percent.

Ultimately, the jobless claims data proved mixed enough to support arguments on both sides of the debate whether Treasuries are overbought. Some analysts noted the four-week average of new claims rose to the highest since late November.

Many hope Federal Reserve Chairman Ben Bernanke will resolve the debate when he delivers a highly anticipated speech on Friday. Bernanke is expected to give his outlook for the U.S. economy and may offer clues on how far the Fed will go to support it.

Some say the Fed’s recently announced Treasury buying program was a timid response to a faltering recovery and might have fueled bond gains on the view little new assistance was on the way for the economy. Others saw it as a significant step to counter a weakening economy.

(Additional reporting by Richard Leong and Burton Frierson; Editing by Andrew Hay)

Bond prices rise after well-bid 7-year auction