Perhaps the US Treasury’s decision to trim the size of the sale of two-year bonds this month offered some support to the latest sale.
The government sold $30bn of two-year notes at a yield of 0.511 per cent on Tuesday, lower than the 0.516 per cent that bond dealers surveyed by Bloomberg had forecast.
However, the auction’s so-called bid to cover ratio – a measure of demand – was 3.23, down from 3.52 at the last auction in May. It’s also weaker than the 3.39 average of the last ten auctions.
Although the yield on two-year Treasury notes has risen from 0.38 per cent at the start of the year, the move higher has been tempered by the Federal Reserve’s repeated signals that it don’t intends to raise interest rates anytime soon.
The yield on the two-year note touched 0.48 per cent on June 17, the day before the Fed released its latest assessment of the world’s largest economy.
A shrinking budget deficit has allowed the US Treasury to cut back on the sale of shorter-dated bonds, with the volume of two-year notes sold falling in May, June and July.