US Treasury prices closed higher Wednesday that was attributed to weaker than estimated economic data. There was little demand for the US Treasury five year notes that showed investors were worried with regards to the date the Federal Reserve would reduce its stimulus program.
The US Treasury sold $35 billion of its five year notes that got the lowest demand since September 2009. It had a bid to cover ratio of 2.45 times. The notes sold at a high yield of 1.48 percent, which is the highest auction yield since July of 2011.
Five year and seven year notes have been the most sensitive to future rate policy. They have performed badly ever since Fed Chair Ben Bernanke announced that the US central bank will reduce its bond purchases if the economy shows sustainable momentum.
Investors remained worried even if yields went up almost three times since the start of May. Five year note yields previously traded at 1.43 percent. They gained from around 1.05 percent before Bernanke made his statement last week. They were around 0.65 percent at the start of May.
Indirect bidders that included fund managers and other investors who buy through dealers purchased 53 percent of the notes. This was the highest level since January 2010. Overall demand was low even if dealers took yields up by 2 basis points before the auction to create a stronger sale.
The auctions came at an awkward time as the quarter’s end draws near. Dealers have limited capacity at this time of the year. Yet the Treasury managed to sell $29 billion worth of seven year notes Thursday that could be due to month end extension buying.
Traders estimated the new seven year notes to get yields of 1.97 percent. This was one basis point higher compared to the notes trading in the secondary market at 1.96 percent.