Treasury prices recovered from early losses Monday as investors took advantage of a dip in prices to add more government debt to their portfolios.
Prices had been lower for much of the day as a weaker dollar drove investors to put money into stocks and commodities.
But Treasury prices started to inch up in late afternoon as the latest round of government auctions met expectations and encouraged investors to buy bonds at lower prices.
"We saw buyers come back in" as bond prices dipped, said Kim Rupert, managing director of global fixed income analysis at Action Economics.
The Treasury Department sold $30 billion in three-month and $31 billion in six-month T-bills as well as $44 billion in two-year notes Monday. Yields on short-term debt have been pressured in recent days as investors clamor for safe places to store cash.
Demand and yields for the new debt were in line with expectations, which tempered the decline in prices even as investors poured into stocks, analysts said. Treasury prices typically move in the opposite direction of stocks as investors swap the safety of debt for riskier assets.
There has been strong demand for short-term bills in recent weeks as investors want to remain liquid as the end of the year approaches. Investors are also looking to lock in gains from the stock market's eight-month surge by stashing cash in ultra-safe government debt. That demand has kept yields near their 2009 lows.
The yield on the three-month T-bill briefly turned negative late last week amid soaring demand for government debt, meaning investors were essentially paying the government to invest with it.
At the same time, investors have grown concerned that the government may curb its issuance of short-term Treasurys as it approaches its debt ceiling.
"The debt limit prohibits them from issuing more debt," Rupert said. "If everyone is geared up for buying more Treasurys as the year ends and there aren't enough bills to satisfy the demand, there could be a crunch."
In late trading, the yield on the outstanding three-month T-bill rose to 0.03 percent Monday afternoon, from 0.01 percent late Friday. The high rate accepted during Monday's auction was 0.04 percent. The discount rate was 0.04 percent.
The bid-to-cover ratio for the three-month bills, a measure of demand, was 3.81, which was in line with auctions in recent weeks for bills with a similar maturity.
Demand for the two-year notes remained strong as some investors opted for higher yields than the short-term bills pay, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
For investors not worried about inflation over the next couple of years, "it makes sense to move out" to longer-term bonds, LeBas said.
The two-year note was unchanged at 100 16/32. Its yield held steady at 0.74 percent.
The government is scheduled to auction another $42 billion in five-year notes Tuesday and $32 billion in seven-year notes on Wednesday before the market closes Thursday for the Thanksgiving holiday.
Stocks rose sharply, sending major indexes up more than 1.2 percent, as the dollar weakened and a report showed sales of existing homes was stronger than expected. The National Association of Realtors said home sales jumped 10.1 percent in October, easily surpassing economists' expectations. Sales climbed to their highest levels in two and a half years, as first-time homebuyers took advantage of a tax credit.
In other trading, the yield on the 10-year note, which is often used as a benchmark for consumer loans, fell to 3.36 percent from 3.37 percent. Its price rose 3/32 to 100 5/32.
The price of the 30-year bond rose 8/32 to 101 19/32, sending its yield down to 4.28 percent from 4.30 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 0.2622.