Investors Jump at Offering of 10-Year Treasury Notes

Investors showed strong interest in the Treasury’s offering of $11 billion in 10-year notes Wednesday, with bidders winning the securities at an average yield of 7.29%, the lowest in five years.

The notes will carry a coupon interest rate of 7.50%, with each $10,000 in face value selling for $10,141.30. Their yield was down from 7.53% at the Nov. 6 auction.

Wednesday’s auction, the second of three in the Treasury’s big quarterly sale of new debt, was more successful than Tuesday’s auction of $15 billion in three-year notes, which was weaker than expected.

Some $11.03 billion in notes were sold out of bids totaling $25.42 billion, a relatively strong showing in line with the previous 12 auctions of 10-year notes, analysts said.

“It was a good, solid auction, a stronger auction than the three-year,” said Paul McCormack, a trading manager at Chase Securities Inc.

A relatively low 38% of the notes sold were at the top accepted yield of 7.30%.

In addition, $652 million in non-competitive bids were received from small investors, the highest level since November, 1990.

The high level of non-competitive bids, which are awarded at the average yield, indicated that small investors think that the notes are a good buy.

Indeed, with inflation relatively low, the yield on the 10-year notes appears attractive, particularly compared to the riskier 30-year bonds, which do not offer a much higher return.

The Treasury’s three-day auction of $36 billion in debt, known as the quarterly refunding, raises money to fund the federal government’s budget deficit and ongoing operations.

Wednesday’s result was good news for the taxpayer because it means that the government will have to spend less paying for the new debt.

Robert Brusca, chief economist at Nikko Securities Co. International, observed that Japanese investors showed little interest in the notes. They are an important source of capital.

Few analysts were willing to predict how the Treasury will do today.