Government bonds were little changed Monday as soaring stock prices chipped away at demand for Treasurys after a successful auction of three-year notes.
Treasury prices rose initially after the $40 billion auction, but by late afternoon were off their highs as stocks surged to their best levels of the year.
A weak dollar was driving investors to buy riskier assets like stocks and commodities, which can generate bigger returns.
The Treasury auction also benefited from the falling dollar, which gave foreign investors more buying power. Foreign bidders purchased 68.5 percent of the notes.
The bid-to-cover ratio, a measure of demand, was 3.33, up from 2.76 at a similar auction last month. It was the strongest demand garnered by an auction of three-year notes since 1993, said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners, a brokerage for institutional investors.
After the auction, the three-year note held steady at 100 1/32. Its yield fell to 1.36 percent from 1.37 percent late Friday. It stood at 1.37 percent in late trading.
The benchmark 10-year Treasury note gained 3/32 to 101 3/32, pushing its yield down to 3.49 percent from 3.50 percent.
Later this week, the government will issue $25 billion in 10-year notes and $16 billion in 30-year notes. Analysts expect those auctions to attract solid demand as well.
Stocks, commodities and bonds have all benefited from record-low interest rates this year, enabling foreign investors to borrow cheaply and get more dollar-denominated assets for their money.
"Any time the dollar sells off, both stocks and bonds do better and it's because foreign money is coming in to our markets," di Galoma said.
On Monday, the ICE Futures US dollar index, which measures the dollar against other major currencies, dropped 1 percent in afternoon trading, after hitting a 15-month low earlier in the session. The falling dollar pushed the Dow Jones industrials up nearly 200 points in afternoon trading.
In other trading, the two-year note was unchanged at 100 9/32, while its yield rose to 0.86 percent from 0.85 percent.
The 30-year bond slipped 2/32 to 101 18/32. Its yield rose to 4.41 percent from 4.40 percent.
The yield on the three-month T-bill rose to 0.05 percent from 0.04 percent. Its discount rate stood at 0.06 percent.
The cost of borrowing between banks slipped. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ fell to 0.273 percent from 0.274 percent.