NEW YORK: US Treasury yields rose on Wednesday following weak demand for a $35 billion sale of new five-year notes, indicating yields may need to rise further to attract demand for Thursday's sale of seven-year notes.
The bid-to-cover ratio for the five-year notes was the lowest since July 2009 as investors stepped away, leaving primary dealers with their largest allocation since October.
The Treasury will sell $29 billion in seven-year notes on Thursday, the final auction of a total of $90 billion in new short- and intermediate-dated government debt this week.
"It was definitely weaker than expected, people were looking for a larger non-dealer take down," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.
Many investors are reticent to buy Treasuries with yields approaching two-year lows. At the same time, weakening economic data has reduced expectations that the Federal Reserve will begin raising interest rates in June.
Thursday's sale may be helped by different investors that are seeking longer-dated debt, and by month-end demand for bonds, Lederer added.
Seven-year notes were last down 9/32 in price to yield 1.72 percent, up from a low of 1.65 percent earlier on Wednesday. Benchmark 10-year notes fell 13/32 in price to yield 1.92 percent, up from 1.85 percent earlier.
Treasury yields fell earlier on Wednesday after data showed that business investment spending plans fell for a sixth straight month in February, which could lead economists to further lower their first-quarter growth estimates.
"It was a very weak number," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "It underscores the fact that you are getting a bit more of a slowdown in growth than people were expecting."
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dropped 1.4 percent last month after a revised 0.1 percent dip in January.
Treasuries have been increasingly sensitive to economic data since last week's Federal Reserve meeting, when the US central bank cut its inflation outlook and growth forecast and indicated that an interest rate hike June was not as baked in as many had previously expected.
A majority of Wall Street's top banks now see the Fed holding off until at least September before raising interest rates for the first time since 2006.
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