Aggressive Bidding Keeps Treasury Auction Rolling

U.S. investors bid aggressively for 10-year Treasury notes at the government’s auction Wednesday, bolstering the view that interest rates have peaked, at least for now.

The average yield on the 10-year notes was 8.59%. Although well above the 7.94% average yield on 10-year notes auctioned last November, Wednesday’s results were nonetheless well received. Both the stock and bond markets rallied sharply.

Traders had feared that interest rates would have to move sharply higher to attract buyers for the government’s bonds this week. Reasons include inflation worries and concerns that foreign investors are forsaking the United States for West Germany and Eastern Europe.

Indeed, Japanese investors did buy relatively few of the Treasury notes Wednesday, traders said. They estimated that Japanese buyers scooped up about 25% of the notes, well below their traditional 33% or so.

But the Japanese got fewer of the notes because U.S. investors bid fiercely, some dealers said--meaning that U.S. investors were willing to accept yields lower than those demanded by the Japanese.

“Everyone bid, so we could not get enough,” said an executive at one major Japanese bond trading firm. Some Japanese investors were said to have wanted the notes at 8.60% or above.

Economists said the 10-year note auction--and Tuesday’s well-received three-year Treasury note sale--bode well for the final Treasury sale today: $10 billion of 30-year bonds.

“What we’re finding is there’s enough demand at current (interest rate) levels so that today’s auction should go pretty smoothly,” said Robert Brusca, economist at Nikko Securities International.

Bond prices rallied as the success of the auction became apparent Wednesday, and the bond rally pushed stock prices higher.

In the open market, the key 30-year bond jumped nearly half a point in value, bringing its yield down to 8.55% from 8.59% on Tuesday.

Bond values fell early in the session, but the market began ticking up as traders slowly realized the auction was going well.

Stocks jumped, too, as the bond market rally convinced investors that upward pressure on interest rates may have peaked.

Many analysts now expect long-term interest rates to trend lower into the spring. Rates have risen about a half percentage point since year-end, and many experts said the rise was an overreaction to inflation concerns.