America’s Fiscal Health Affirmed as Treasuries Demand Rises

(Bloomberg) -- America’s improving fiscal health is starting to be reflected in the market for Treasuries.

As the Federal Reserve scales back its unprecedented bond buying this year, the ability of the world’s largest debtor nation to attract investors underscores the strides the U.S. has made to strengthen its creditworthiness after the worst financial crisis since the Great Depression. With the budget deficit at a seven-year low and household wealth rising to a record, investors from mutual funds to foreign central banks are buying a greater share of Treasuries at government auctions than ever compared with bond dealers that are obligated to bid.

“This goes a long way to blunting the criticism of investing in the U.S. dollar,” Wan-Chong Kung, a bond manager at Nuveen Asset Management, which oversees more than $100 billion, said in an April 2 phone interview from Minneapolis.

Investors submitted bids for $1.73 trillion of government notes and bonds at auctions held in the first quarter, or 3.07 times the $564 billion that was sold, according to data compiled by Bloomberg. The bid-to-cover ratio rebounded from last year’s 2.87, which was the lowest annual level in four years.

The last time the ratio was higher on a quarterly basis was in 2012, when demand peaked at a record 3.12 times. Investors also bought a 58.7% of Treasury debt issued last quarter, with the rest purchased by the 22 primary dealers that trade with the Fed.

Increased demand has helped curb U.S. borrowing costs, confounding forecasters who said yields would rise as the Fed started to cut back on its $85 billion of monthly purchases of Treasuries and mortgage-backed bonds to support the economy.

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