Long-term Treasurys reverse early losses, move higher after solid auction of 7-year notes

Long-term Treasurys gain after successful auction

NEW YORK — Long-term Treasury prices reversed early losses and moved higher Thursday, buoyed by a solid auction of seven-year notes. Short-term debt was flat.

Bond investors breathed easier after the auction of $28 billion of seven-year notes went smoothly, especially considering auctions earlier this week of shorter-term debt didn’t go as well.

The market has been concerned that if demand continued to waver, the government would be forced to increase the returns on bonds to lure buyers, which in turn can raise borrowing costs for consumers and businesses. Long-term Treasury yields are linked to interest rates on mortgages and other kinds of consumer loans.

“The results were very positive today,” said William Dennehy, senior fixed income portfolio manager at Northern Trust Co. “People are more interested in longer-term Treasurys because there is a bit more risk in them.”

The benchmark 10-year Treasury note rose 14/32 to 96, after being down about half a point ahead of the auction. That pushed its yield down to 3.61 percent from 3.67 percent late Wednesday.

The auction’s bid-to-cover ratio, a measure of demand, was 2.63 percent, compared with 2.82 percent at a similar auction last month and above the recent average of 2.5 percent.

Indirect bids, an indication of foreign buying, were also solid.

Stock traders were relieved by the results, too. The Dow Jones industrial average rose 84, though ended off its best levels.

Investor anxiety about the huge amounts of government debt being pumped into the system has been high this year. Those fears escalated this week as the Treasury prepared to auction off a one-week record of more than $200 billion in new debt.

Earlier this week, demand at auctions of two and five-year notes was much weaker and participation from foreign investors appeared to be less.

Investors appear to have more of an appetite for longer-term Treasurys, analysts said, which marks a shift from earlier this year, when they clamored for the safety of short-term debt.

Rates on short-term Treasurys have been supported by action from the Federal Reserve, which has kept the target for its federal funds rate to a record low of between zero and 0.25 percent. Many economists believe the Fed will not begin raising rates until next year.

With optimism over an economic turnaround growing, appetite for risk has been higher in recent weeks, making longer-term Treasurys more attractive, Dennehy said. He expects Treasurys to continue to move higher through early next week, which doesn’t bring any major auctions. The next round of auctions begins the week of August 10.

In late trading, the two-year note slipped less than 1/32 to 99 20/32, and its yield rose to 1.18 percent from 1.17 percent.

The 30-year bond rose 1 18/32 to 97 12/32, and its yield fell to 4.41 percent from 4.51 percent.

The yield on the three-month T-bill was unchanged at 0.17 percent. Its discount rate was 0.18 percent.