Bond prices fall after $35B note auction

AP News
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Posted: Feb 23, 2011 5:18 PM
Bond prices fall after $35B note auction

Treasury prices mostly dipped Wednesday after tepid demand at an auction of $35 billion in five-year notes.

The price of the 10-year Treasury note slipped 25 cents per $100 invested. Its yield, which moves in the opposite direction, rose to 3.49 percent from 3.46 percent late Tuesday.

Short-term and medium-term bonds pared back their gains from Tuesday, when concerns over escalating tension in Libya led traders to seek safer investments. The 30-year bond still drew interest, pushing its price higher.

Investors are also considering the potential economic effects of a spike in oil prices caused by spreading unrest in North Africa and the Middle East.

"In the background, you have concerns over oil prices which could debilitate the consumer and hurt the economy," said John Spinello, a bond strategist at Jefferies & Co.

The recent rally in Treasury prices, and the subsequent decline in yields, dulled enthusiasm for Wednesday's five-year note auction.

Spinello characterized the auction as "sloppy." Investors "shied away from the low yields," he said.

Demand at a $35 billion auction of two-year notes the day before was also relatively weak. An auction for $29 billion in seven-year notes is set for Thursday.

Traders will also watch Thursday's slate of economic data: new home sales, jobless claims and durable goods. On Friday, the government releases its revised estimate of fourth-quarter gross domestic product.

The price on the 30-year bond rose 31.2 cents per $100 invested, while its yield fell to 4.59 percent from 4.61 percent late Tuesday. The yield on the two-year note rose to 0.76 percent from 0.70 percent.

In the market for short-term Treasury bills, the three-month T-bill paid a 0.11 percent yield. Its discount was 0.12 percent.