Treasurys seesaw after 10-year notes sale

AP News
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Posted: Nov 10, 2009 5:20 PM

Treasury prices seesawed Tuesday, ending the day roughly flat after a solid auction of 10-year notes.

Treasurys had been higher going in to the $25 billion auction _ a record issuance of 10-year notes _ buoyed by enthusiasm over a successful sale of three-year notes the day before. But the market sold off immediately following the sale as investors locked in profits.

"In the case of this 10-year, we've exhausted the buyers," said David Ader, head of government bond strategy at CRT Capital Group. "The buyers were sated and that was enough."

Longer-dated Treasurys suffered the biggest losses as a $16 billion auction of 30-year bonds looms. The government will issue the 30-year notes on Thursday. Bond markets will be closed Wednesday in observance of the Veteran's Day holiday. It's not unusual for investors to sell off Treasurys heading in to an auction in an effort to force down the price.

By late trading, all but the 30-year bond had recovered their losses but were still off their highs from earlier in the day.

After the auction, the yield on the benchmark 10-year Treasury rose to 3.50 percent, having traded at 3.47 percent just before. In late afternoon trading, the yield was 3.48 percent, down slightly from 3.49 percent late Monday. Its price rose 4/32 to 101 7/32.

The bid-to-cover ratio at the auction, a measure of demand, was 2.81, down from a similar auction last month, but in line with the recent average. Indirect buyers, a good indication of foreign demand, made up 47.3 percent of the purchases.

Investors have worried that demand for Treasurys would fall off this year as the government issues record amounts of debt to finance its stimulus programs, but demand has proven to be strong.

Government bond prices were little changed Monday as well as soaring stock prices ate into demand for Treasurys after the successful auction of three-year notes.

In other trading Tuesday, the 30-year bond fell 6/32 to 101 13/32. Its yield held steady at 4.41 percent.

The two-year note rose 1/32 to 100 10/32, while its yield fell to 0.84 percent from 0.86 percent.

The yield on the three-month T-bill rose to 0.06 percent from 0.05 percent. Its discount rate was 0.07 percent.

The cost of borrowing between banks was unchanged. The British Bankers' Association said the rate on three-month loans in dollars _ the London Interbank Offered Rate, or Libor _ held steady at 0.273 percent.