Willing buyers snap up T-bonds

Despite the ballooning federal deficit staring Treasury bond investors in the face, the government managed Wednesday to sell a record $30 billion in three-year notes.

The notes sold at an annualized yield of just 1.2%.

Investors put in a total of $66.3 billion in bids for the securities, which traders said was decent demand, if a bit weaker than expected.

“For a $30-billion issue, I think the market did pretty well handling it,” said Brian Edmonds, head of interest rates at bond dealer Cantor Fitzgerald in New York.

Demand is crucial because of the volume of debt the government expects to issue this year to fund the financial system bailout and a stimulus spending program for the sinking economy.

The Congressional Budget Office estimated Wednesday that the federal deficit would more than double this fiscal year, to nearly $1.2 trillion. And that’s not counting President-elect Barack Obama’s planned stimulus program.


The mountain of Treasury debt sales on the horizon has raised fears that investors could balk, figuring it’s smarter to wait to buy later at what could be higher yields.

Meanwhile, an attempt Wednesday by the German government to sell up to $8 billion of 10-year bonds failed to generate enough demand to complete the offering, Bloomberg News reported. Bond dealers didn’t seem to make too big a deal of the shortfall in bids, but Edmonds said it was a reminder that investors’ appetite for government securities isn’t infinite.

“Does this make the Treasury nervous? No doubt,” he said.

A snap-back in Treasury yields since mid-December may have helped boost demand at Wednesday’s sale. Some investors in recent weeks had been selling low-yielding government bonds and funneling money into corporate, municipal and mortgage bonds, as well as into stocks.

But that shift stalled Wednesday amid more dismal news on the economy: A monthly employment report from Automatic Data Processing estimated that private payrolls in the U.S shrank by a stunning 693,000 jobs in December. That was far worse than economists’ consensus estimate of 500,000 jobs lost.

The government on Friday will release figures for overall December employment.

Bad economic news typically has been the Treasury bond market’s ally, causing many investors to shun risk and focus on safety of principal.

Another test of investor demand comes today, when the government will sell $16 billion in 10-year notes.