Traders Flood U.S. With $3.4 Trillion of Bond-Auction Demand

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The intensifying debate over when the Federal Reserve raises interest rates is little more than a sideshow when it comes to the ability of the U.S. to borrow.
For all the concern fixed-income assets will tumble once the central bank boosts rates, the Treasury Department still managed to get investors to submit $3.4 trillion of bids for the $1.12 trillion of notes and bonds sold this year, according to data compiled by Bloomberg. That represents a bid-to-cover ratio of 3.06, the second-highest on record and up from 2.88 in all of last year.
Attracting investors is critical for the U.S. as it finances a debt load that has more than doubled to almost $18 trillion since before the financial crisis. The appeal of Treasuries was on display last week as benchmark 10-year notes rallied the most since March while investors sought a haven amid rising concern over the health of a Portuguese bank.
“There are still plenty of needy buyers,” William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a July 8 telephone interview. “We’ve seen it from all sources,” said O’Donnell, whose firm is one of the 22 primary dealers of U.S. debt obligated to bid at Treasury auctions.
Lowered Outlook
Behind the demand is speculation the global economy isn’t growing fast enough to allow central banks to easily withdraw from loose monetary policies that have supported bond markets around the world. Barclays Plc, another primary dealer, cut its forecast for worldwide gross domestic product on July 11 to an increase of 3.1 percent at an annual rate this quarter from 3.4 percent.
Fed officials “noted that monetary policy needed to continue to promote the favorable financial conditions required to support the economic expansion,” according to the minutes of the June 17-18 Federal Open Market Committee meeting released July 9 in Washington.
At the same time, global regulatory changes related to the Dodd-Frank Act and mandated by the Volcker Rule and Basel III are requiring

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