June 26, 2019 / 6:10 PM / 21 days ago

UPDATE 1-U.S. 5-year note sold at lowest yield in nearly two years

(Adds background, analyst comment)

NEW YORK, June 26 (Reuters) - The U.S. Treasury Department on Wednesday sold $41 billion in five-year fixed-rate notes at a yield of 1.791%, which was the lowest yield at an auction of this government debt maturity since August 2017, according to Treasury data.

The ratio of bids to the amount of five-year debt offered was 2.35, which was the lowest since March. This measure of overall auction demand was 2.38 at the previous five-year note sale in May.

The yield on the latest five-year note supply came in higher than what traders had expected. This suggested some investors thought current five-year yields were too low following last week’s bond market rally after the Federal Reserve signaled it was ready to lower interest rates later this year.

On the open market, five-year Treasury yields was 1.7902% in mid-afternoon Wednesday trading, after touching 1.7090% on Tuesday, which was their lowest level since September 2017.

Moreover, traders reduced their bets on an aggressive half percentage point rate cut from the Fed at its next policy meeting on July 30-31 after comments on Tuesday from Fed Chairman Jerome Powell and St. Louis Fed chief James Bullard.

“It looks as though the note was too rich, and especially considering aggressive near-term rate cuts are not looking so likely,” Kim Rupert, Action Economics’ managing director of global fixed income analysis, wrote in a research note.

The Treasury will complete this week’s debt sales on Thursday: $40 billion in one-month bills; $35 billion in two-month bills and $32 billion in seven-year notes.

Reporting by Richard Leong Editing by James Dalgleish and Chizu Nomiyama

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