The government continued its unprecedented fund raising efforts Tuesday, continuing to sell debt to back its record stimulus spending. In addition to increasing the frequency of sales, the Treasury Department has boosted the size of individual offerings. Further jolting funding, the government has brought back seven year-notes into circulation for the first time since 1993.
Despite the treasury market being flooded with bonds as a result of the debt sales, auctions have been able to sustain moderate demand. Government bonds have seen continued interest as they guarantee a fixed return, which has acted as a relative safe haven in a recessionary economy.
In the early afternoon hours Tuesday, the Treasury Department completed its sale of the ten-year inflation protected note, known as TIPS. The auction of $6.0 billion worth of the notes posted an interest rate of 2.125 percent, while drawing a high-yield of 1.589 percent. The demand for the notes was modest, with the bid-to-cover ratio coming in at 2.25. The security is set to mature January 15th, 2019.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
The previous auction for comparable securities took place in January, when $8.0 billion worth of the securities was sold. The auction drew a yield of 2.245 percent, while attracting strong demand, with the bid-to-cover ratio coming in at 2.48.
The results of the ten-year TIPS auction are closely watched, as the spread between the security and the regular ten-year note will give an indication of near-term inflation.
Earlier in the day, the Treasury Department completed its auctions of 52-week and 4-week bills.
The auction of $25.0 billion worth of 52-week bills drew a high yield of 0.590 percent while posting strong demand, with the bid-to-cover ratio coming in at a level of 3.30. The security is scheduled to mature April 8th, 2010.
The previous auction for comparable securities took place early last month, when the Treasury sold $24.0 billion worth of the securities. The auction drew a yield of 0.7 percent, while attracting strong demand, with the bid-to-cover ratio coming in at 3.51.
In recent auctions, the offering size of the 52-week bill has seen an increase of approximately $8 billion since last year, as the government has dramatically increased spending to deal with the recession.
Separately, the government auctioned $28.0 billion worth of 4-week bills, with the sale drawing a high yield of 0.160 percent. The auction attracted strong demand, with the bid-to-cover ratio coming it at 3.41. The bond is set to mature May 7th, 2009.
The previous sale of the bills took place early last week, when $34.0 billion worth of the securities were sold. The auction drew a high yield of 0.170 and posted modest demand, with the bid-to-cover ratio coming in at 2.55.
4-week bills have seen a boost in offering size of approximately $10 billion in recent months to help pay for the government's stimulus plans.
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