Treasuries Decline as U.S. Prepares Third Day of Debt Sales

By Wes Goodman - Dec 14, 2011 10:08 AM GMT+0700

Treasuries fell for the first time in three days on speculation demand will wane at a $13 billion auction of 30-year bonds today after investors loaded up on three- and 10-year notes earlier this week.

Thirty-year yields of about 3 percent don’t offer much value, said Martin Hegarty, co-head of global inflation-linked portfolios at BlackRock Inc., the world’s largest money manager. Rates declined this week as investors sought the relative safety of Treasuries on concern Europe’s debt crisis will spread.

“The current level is not attractive, but Treasuries are the safest investment,” said Tsutomu Komiya, a bond investor at Daiwa Asset Management Co. in Tokyo, which oversees the equivalent of $118.82 billion and is a unit of Japan’s second- biggest brokerage. “As long as the trouble in Europe continues, Treasury yields will remain low.”

Benchmark 10-year rates rose two basis points to 1.98 percent as of 12:07 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in November 2021 slid 5/32, or $1.56 per $1,000 face amount, to 100 5/32. The record low was 1.67 percent set Sept. 23.

Thirty-year yields increased two basis points, or 0.02 percentage point, to 3.03 percent. Investors should replace these bonds in their portfolios with 30-year Treasury Inflation Protected Securities, or so-called real rates, Hegarty said in an interview yesterday on Bloomberg Television’s “Street Smart” with Adam Johnson.

“We tend to be underweight nominal Treasuries and overweight real rates,” said Hegarty, who helps oversees $3.35 trillion for BlackRock in New York. “I wouldn’t say that 30- year Treasuries at 3 percent are reflective of their risks.”

Auction Demand

Investors bid for 2.40 times the amount of debt offered at the previous 30-year sale on Nov. 10, versus the average of 2.65 for the past 10 of the monthly auctions.

Indirect bidders, the investor group that includes foreign central banks, purchased 28.4 percent of the securities, less than the average of 34.9 percent in sales since February.

Bids at yesterday’s 10-year auction amounted to 3.53 times the amount offered, the highest level in 20 months.

The figure was 3.62 at three-year sale on Dec. 12, the most since 1993 when the government began releasing the data.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net