Treasurys creep higher after 7-year auction

AP News
Posted: Dec 30, 2009 5:51 PM

Interest rates fell slightly Wednesday following an auction of $32 billion of seven-year notes.

The yield on the 10-year Treasury note, which is used as a benchmark for interest rates on mortgages and other consumer loans, slipped to 3.79 percent from 3.80 percent late Tuesday. Its price rose 2/32 to 96 18/32 in late trading.

The yield on previously issued seven-year notes dipped to 3.31 percent from 3.32 percent. Its price rose 1/32 to 96 18/32.

Investors were relieved that the last of the government's auctions this week went smoothly. The Treasury Department sold a total of $118 billion in debt this week, capping a record year of issuances.

There has been some concern this year that with so much debt hitting the market to fund the government's bailout and stimulus programs, demand could fall off. But most auctions have continued to garner strong demand.

The bid-to-cover ratio, a measure of demand, was 2.72, up from an average of 2.56 at the last 10 auctions of similar notes, said Howard Simons, strategist with Bianco Research in Chicago.

Trading was quiet, as it has been in recent days. Fewer traders are in the market due to the New Year's holiday on Friday.

"I think everybody pretty much has their books closed," Simons said.

In other trading, the price of the 30-year bond rose 14/32 to 96 5/32. Its yield fell to 4.61 percent from 4.64 percent.

The yield on the two-year note was flat at 1.09 percent, while its price was steady at 99 26/32.

The yield on the three-month T-bill dropped to 0.03 percent from 0.09 percent. Its discount rate was 0.04 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 _ was flat at 0.2506 percent.