Investors set record buying U.S. Treasury securities

By Bloomberg News
Monday, July 19, 2010

For the first time since the government started collecting the data, central banks, mutual funds and U.S. banks are buying more government securities at Treasury auctions than Wall Street's bond dealers.

Foreign and domestic investors bidding directly at note and bond auctions bought 57 percent of the $1.26 trillion in Treasurys sold by the government this year, up from 45 percent in 2009 and as little as 32 percent for all of 2008, according to government data. Bids compared with the amount of debt sold, the bid-to-cover ratio, rose 18 percent from a 14-year high in 2009, according to Treasury data.

The combination of the lowest U.S. inflation rate in four decades and continuing concerns that the global recovery will falter is boosting bonds even as yields on 10-year notes fall below 3 percent, the lowest since April 2009. The surge in demand through direct and indirect bids is helping drive down rates as President Obama grapples with a budget deficit that's forecast to swell 14 percent, to a record $1.6 trillion.

"The economic backdrop is favorable for Treasurys," said Thomas Girard, who helps manage $115 billion at New York

Life Investment Management. "There's no fear of inflation. The bigger fear is deflation."

Yields on 10-year notes fell 13 basis points last week, to 2.92 percent, according to BGCantor Market Data. That's 88 basis points above the record low of 2.04 percent reached on Dec. 18, 2008, after the collapse of New York-based Lehman Brothers spurred investors to seek only the safest government securities.

The two-year yield dropped to an all-time low of 0.577 percent on a weak report on U.S. consumer confidence from July 16.

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