UPDATE 1-Bond rally steals Treasury’s thunder at 2-yr sale

(Adds details, quote)

By Burton Frierson

NEW YORK, April 27 (BestGrowthStock) – The U.S. government sold $44
billion of two-year debt on Tuesday in an auction that drew
soft demand as the fiscal crisis in troubled euro zone
countries sparked a rally in Treasuries prices that drove
yields lower.

The U.S. government sold $44 billion of two-year debt on
Tuesday in an auction that drew soft demand as the fiscal
crisis in troubled euro zone countries launched a rally in debt
prices and drove yields lower.

The auction was the second and biggest of four bond sales
in this week’s record offering of $129 billion worth of
coupon-paying securities and suffered from expensive pricing
because of the run-up in Treasury prices.

The Treasuries rally came in a session in which Standard &
Poor’s cut Greece’s sovereign credit ratings to “junk” status
and also downgraded Portugal, leading investors to opt for the
traditional safe harbor of U.S. government bonds.

Expensive market levels led investors to demand a premium
to take down the bonds. This was illustrated by yields at the
auction, which were higher than expectations in the when-issued
market, also known as a tail.

“The two-year came weaker than expected due to the run-up
before the auction on a safe-haven bid on the back of the
Greece downgrade,” said Tom di Galoma, head of fixed income
rates trading at Guggenheim Partners in New York.

Overall demand at Tuesday’s auction was still solid based
on the bid-to-cover ratio of 3.03 times the amount on offer.
That was above the long-run average of 2.36.

Foreign central banks and large institutional investors
appeared to show weak demand, based on the indirect bidder
category, which took about 31 percent of the sale.

That was below its average of about 45 percent since June
2009, which has become a benchmark for comparisons because of
changes in calculations since then.

However, the direct bidding category accounted for 21
percent of the sale, well above its average of about 11 percent
since June. This category has been growing for much of the
market in recent months.

Financial markets have been watching bond auctions closely,
given a burgeoning U.S. budget deficit brought on by a costly
financial sector bailout and efforts to stimulate the economy.

While analysts say the jump in debt could come back to
haunt the government, the Treasury last week signaled its bond
issuance may have peaked, suggesting the worst may be over.

Traders were not inclined to view Tuesday’s sale as a sign
of weak demand overall for U.S. debt securities, given the
exceptional circumstances.

“I think with the run-up that the market has seen this
morning, that probably took some of the bidders away,” said
Mary Ann Hurley, vice president of fixed-income trading at D.A.
Davidson & Co in Seattle.

“It tailed, it had 31 percent go to indirect bidders, which
was actually a little bit on the low side. The bid-to-cover
ratio was 3.03 and that was very, very good. So I would call it
a mixed auction.”

Stock Market Research Tools
(Additional reporting by Ellis Mnyandu; Editing by Padraic
Cassidy)

UPDATE 1-Bond rally steals Treasury’s thunder at 2-yr sale