5-year Treasury auction draws record-low yield

AP News
Posted: Sep 28, 2011 5:39 PM
5-year Treasury auction draws record-low yield

The Treasury Department auctioned $35 billion of five-year notes at a record low yield, reflecting strong demand for lower-risk investments.

The notes were priced to yield 1.015 percent, slightly lower than market yield at the time of auction.

Traders sold higher-risk assets throughout the day because of fresh concerns about divisions among European leaders over how to handle the region's debt crisis. German Chancellor Angela Merkel said in an interview that the terms of Greece's bailout package might need to be changed.

Uncertainty about Europe's plans has caused extreme market volatility for months. Traders fear that Greece will default on its debts, threatening big banks and rattling the fragile world economy. The latest disagreement dampened hopes for a quick, decisive solution.

Treasury yields were barely changed since late Tuesday, after a see-saw session in which stocks opened higher then fell sharply. The Dow Jones industrial average closed down 180 points. Traders piled into investments seen as less risky than stocks, such as Treasurys and dollars.

At 4:40 p.m., the yield on the 10-year Treasury note was flat at 1.99 percent. Its price fell 71.9 cents for every $100 invested. The 10-year yield had risen as high as 2.06 percent at midday, before optimism waned over a proposed debt crisis plan for Europe.

The yield on the 30-year Treasury bond edged up to 3.08 percent from 3.07 percent late Tuesday. Its price fell $1.69 for every $100 invested.

The strong auction for five-year Treasury notes boosted demand for them after the auction closed. Their yield fell back to 0.94 percent, unchanged from late Tuesday.

The yield on the three-month Treasury bill was flat 0.01 percent. Its discount wasn't available.

In other trading, funds that mirror the prices of investment-grade corporate debt fell sharply, suggesting that many companies' borrowing costs are rising. Analysts expect corporate interest rates to keep rising as the economy weakens. They say traders are waiting to buy newly-issued corporate debt at lower prices to increase their returns.