Buyers flock to 30-year Treasury bond sale despite debt rating risk
The U.S. Treasury saw robust demand Thursday at its auction of new 30-year bonds, showing investors so far are largely unmoved by the risk of a cut in America’s credit rating.
The Treasury sold $13 billion in bonds at a yield of 4.198%, lower than the 4.215% analysts had expected. And buying by foreign and domestic investors was strong enough that Wall Street dealers ended up with just 40% of the securities for themselves, the lowest percentage for any 30-year bond sale since August, according to data from CRT Capital Group.
Still, market yields on Treasuries were modestly higher Thursday, a day after Moody’s Investors Service warned that it may downgrade the U.S. from its current top AAA debt rating if Congress fails to raise the federal debt ceiling by Aug. 2.
Moody’s cited the risk that the U.S. might default on its debts without more borrowing power, although the Treasury could cut many other payments -- including Social Security -- before stiffing bondholders.
The five-year T-note yield rose to 1.48% from 1.44% Wednesday. The 10-year T-note edged up to 2.93% from 2.92% at Wednesday’s auction of $21 billion in new 10-year notes.
The bond market may be unhappy with Federal Reserve Chairman Ben S. Bernanke’s latest testimony before Congress. On Wednesday, Bernanke told a House panel that the central bank could launch a new stimulus program if the economy weakened significantly. That raised hopes that the Fed could restart the Treasury-bond-buying program it terminated June 30.
But speaking to a Senate panel on Thursday, Bernanke stressed that the Fed was content for now to sit on its hands. “We’re not prepared at this point to take further action,” he said.
The stock market was in the red after an early rally. The Dow Jones industrial average was down 12 points, or 0.1%, to 12,479 at about 11:20 a.m. PDT, after gaining 0.4% on Wednesday.
Budget talks between the President Obama and Republican leaders were set to resume Thursday. Key Republicans have been balking at raising the debt ceiling unless the White House agrees to deep spending cuts.
The dollar was little changed Thursday after losing ground Wednesday following Moody’s announcement. Gold rose for an eighth straight session to another record high, up $3.80 to $1,589.00 an ounce in New York.
-- Tom Petruno
Photo: The Treasury building in Washington. Credit: Andrew Harrer / Bloomberg News