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Buyers flock to Treasury note sale, showing no fear of Fed

September 22, 2009 | 12:14 pm

The U.S. Treasury demonstrated again today that there is no limit to its ability to borrow.

As a taxpayer, does that make you feel confident -- or terrified?

Investors flocked to the government’s sale of a record $43 billion in two-year T-notes, resulting in the strongest demand at any two-year note sale since September 2007.

The notes were sold at a yield of 1.03%, about as expected.

The Treasury got $3.23 in bids for every $1 in notes offered, up from an average of $2.79 in bids per $1 offered in the last eight two-year note auctions.


The Federal Reserve is virtually certain to announce after its meeting on Wednesday that it remains committed to keeping its benchmark short-term interest rate near zero indefinitely. Given that expectation, many investors see no risk of a significant rise in Treasury bond yields.

"People have to put money to work," George Goncalves, head of fixed-income strategy at Cantor Fitzgerald, noted on Reuters. "Every auction right now is like 'Groundhog Day' -- it's stop, pause and repeat. This recurring bid is not going away."

It also helps that the Fed continues to buy Treasuries for its own account, although that buying program is supposed to be nearing its end. The Fed has purchased $289 billion of Treasuries in various maturities this year under a program that’s supposed to cap at $300 billion.

The Treasury’s borrowing wave to fund the record U.S. budget deficit will continue on Wednesday with the sale of $40 billion in five-year notes. On Thursday the government will sell $29 billion in seven-year notes.

Enough investors, including foreigners, remain enamored of Treasuries even though the falling dollar suggests that many people are finding better things to do with their money than buy dollar-denominated bonds.

The buck is sliding again today against other key currencies. The euro has jumped to $1.479, a one year high and up from $1.468 on Monday.

The DXY index of the dollar’s value against six other major currencies has fallen to 76.12 today, also a 52-week low. It’s down 6.4% this year.

-- Tom Petruno

Photo: The Treasury building in Washington. Credit: Scott Robinson / Los Angeles Times