Demand for new Treasuries from their biggest owners is proving impervious to rising yields and the retreat of Wall Street dealers.
Bids submitted by investors including mutual funds, foreign central banks, pension managers and insurance companies totaled 83 percent of Treasury debt auctioned this year, compared with 84 percent in 2012 and 37 percent in 2008 at the peak of the worst financial crisis since the Great Depression, according to data compiled by Bloomberg.
Consistent demand from investors who control 81 percent of the $11.6 trillion in Treasuries is helping balance declining purchases from bond dealers and individuals in the worst year for government debt since 2009.
The current environment is marked rising yields as the economy improves, the U.S. preparing to refinance a record $1.38 trillion next year, the budget deficit shrinking to the lowest level since 2008, the Federal Reserve planning to reduce its stimulus, and Congress battling President Barack Obama over raising the borrowing limit.
“Sovereign wealth funds and central banks are going to continue to have demand for Treasuries,” James Sarni, senior managing partner in Los Angeles at Payden & Rygel, which manages $85 billion, said in a Sept. 17 telephone interview. “Despite the fact there’s widespread concerns that rates are going up, there’s still demand coming from individuals looking for income,” while institutions prize their safety and liquidity, said Sarni, who has been buying high-yield company bonds.
Hedge funds and mutual funds received 20.6 percent of the $13 billion sale of 30-year bonds on Sept. 12, the most since June 2012. That followed their purchase of 29.6 percent of the $21 billion 10-year note offering on Sept. 11 and 20 percent of the $31 billion offering of three-year securities the day before, both six-month highs.
This year they have bought $250.9 billion, or 17.3 percent of Treasuries sold at auction, on pace to surpass the record of 14.4 percent set last year and 2.6 percent in 2008, government data compiled by Bloomberg show.
Investors bid for 2.88 times the $1.521 trillion of notes and bonds sold at Treasury auctions, down from the record 3.11 times the $2.153 trillion sold last year. While the bid-to-cover ratio has fallen for the first time since 2008, demand is the fourth-highest on record going back to 1994. When the U.S. ran budget surpluses from 1998 to 2001, the ratio averaged 2.26 times.