30-Year USA Treasuries Fall Most Since June After $9 Billion Sale

30-Year Treasuries Fall Most Since June After $9 Billion Sale

By Sandra Hernandez and Deborah Finestone

Feb. 7 (Bloomberg) -- U.S. 30-year Treasuries fell the most since June as demand was weaker than expected at the government's $9 billion auction of the securities.

Ten- and 30-year securities declined a second straight day as investors balked at buying at this week's auctions, with yields at record lows. Investors are also betting that the Federal Reserve's five interest-rate cuts since September will revive economic growth and cause inflation to accelerate, reducing the value of Treasuries' fixed payments.

``The auction went as poorly as one could imagine,'' said Andrew Brenner, co-head of structured products in New York at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``There isn't a lot of demand for bonds at these levels.''

The yield on the new benchmark 10-year note auctioned yesterday, with a 3 1/2 percent coupon and due in February 2018, rose 16 basis points, or 0.16 percentage point, to 3.76 percent as of 2 p.m. in New York, according to bond broker Cantor Fitzgerald LP. Benchmark 10-year yields fell to a 4 1/2-year low of 3.285 percent on Jan. 23, the day after the Fed's emergency 0.75 percentage point rate cut.

The new 30-year bond drew a yield of 4.449 percent at the auction, compared with 4.41 percent in pre-auction trading and the 4.421 percent forecast of six bond-trading firms surveyed by Bloomberg News. The new bond last traded with a yield of 4.50 percent. The yield on the bond due in May 2037 rose 13 basis points, the biggest increase on a long bond since June.

Lowest on Record

The yield on the new long bond was the lowest on record, according to Steve Meyerhardt, an official in the Bureau of the Public Debt in Washington.

In today's auction, indirect bidders, the class of investors that includes foreign central banks, bought 10.7 percent, the lowest on a new 30-year bond since the Treasury resumed sales of the maturity in February 2006 after an almost five-year hiatus.

Investors bid $1.82 for every $1 of new debt sold. The average for the past three sales of new bonds since February 2006 is $2.03.

``The Fed will maybe overstimulate the economy by moving as abruptly as they have,'' said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co., a brokerage for institutional investors in New York. ``That causes people to shy away from the back end of the market.''

Yield Curve Steepens

Traders pushed two-year note yields to about 1.7 percentage points below 10-year rates. The difference is the biggest since September 2004, signaling investors are favoring shorter- maturity securities, which are most sensitive to expectations that borrowing costs will fall.

The two-year note's yield rose 8 basis points to 2.02 percent.

U.S. economic growth will accelerate at a 2.5 percent annual rate in the fourth quarter, double the pace of this quarter, according to the median forecast of analysts surveyed by Bloomberg News. U.S. consumer prices rose 4.1 percent in 2007, the most since 1990, the Labor Department said last month.

Traders see an 80 percent likelihood that Fed policy makers will reduce their target for overnight loans between banks by a half-point to 2.50 percent at or before their next scheduled meeting on March 18, futures on the Chicago Board of Trade show. The rest of the bets are for a 75 basis point cut.