Demand High for Treasuries; Auction Generates Interest of 8.43%
The U.S. Treasury sold $10 billion worth of three-year notes yesterday at an average yield of 8.43 percent, a rate sharply higher than the 7.77 percent the government paid at the last such sale in November.</br></br>However, the Treasury auction was the most oversubscribed in years, with bids received almost three and one-half times the amount of securities sold. Some analysts were surprised by the high level of demand, given widespread worries that many investors, such as institutional buyers from Japan, might have better investment opportunities at home.</br></br>Robert Brusca, chief economist for Nikko Securities International, estimated that Japanese investors, reportedly urged on by their central bank, purchased 30 percent to 40 percent of the notes. He cautioned, however, that they may have much less interest in the 10-year notes the Treasury will sell today and the 30-year bonds they will offer tomorrow. Both are also $10-billion issues.</br></br>"It looks great ... it feels rotten," Brusca said. "We get a sense the Japanese ... bought the safest thing they could buy, which is the three-year note. It's a dark lining to a silver cloud."</br></br>At 8.43 percent, the yield yesterday was the highest since 9.12 percent at an auction last May, which was before the Federal Reserve began lowering the interest rate financial institutions pay when they borrow from each other. That rate is now about 1.5 percentage points lower than it was then, while the rate the Treasury had to pay for its money yesterday was down less than half that amount.