Foreigners Buy Fewer T-Notes

Treasury bond yields fell early Wednesday as buyers stepped up, but the rally fizzled after an auction of new five-year T-notes drew meager demand from foreign investors.

Indirect bidders, a category of buyers that includes foreigners, bought a surprisingly modest $2.8 billion of the $13 billion in notes offered for sale. That left Wall Street bond dealers with the bulk of the offering, which was sold at a yield of 4.22%.

By contrast, indirect bidders bought $3.8 billion of the five-year notes sold in July and $6.9 billion at the June sale, according to Treasury data.

Overall, the five-year note sale drew decent demand thanks to bids from dealers. But because strong foreign demand for U.S. bonds has been crucial for the financing of the nation’s budget and trade deficits, analysts have been watching for signs that foreigners might be losing their appetite for U.S. debt.

China’s recent decision to stop pegging its currency solely to the dollar’s value also raised concerns that China might slow its U.S. bond purchases.

The 22% share of the five-year notes bought by indirect bidders was the smallest in two years.

“One auction does not a trend make, but if we consistently see lower indirect participation, then I think people are going to get worried,” said Alan DeRose, a bond trader at CIBC World Markets in New York.

The yield on the benchmark 10-year T-note slipped to 4.37% early in the day but rose after the Treasury auction to end at 4.39%, unchanged from Tuesday.

The Treasury will sell $13 billion of new 10-year notes today.