Treasury prices fell sharply Wednesday as emerging plans to aid Europe's banks diminished the appeal of U.S. government debt. A weak auction of 10-year Treasury notes helped push the yield to its highest level since August.
The European Commission's president said Wednesday that banks should stop paying dividends and bonuses until they have increased their capital cushions. Banks need the emergency cash because they hold billions in Greek debt. Greece's likely default could cause them big losses.
The leaders of France and Germany pledged last weekend to outline a bank-rescue plan by the end of October.
Traders flocked to investments such as stocks that can offer much larger returns when the economy is strong. They sold Treasurys.
The 10-year note fell 53 cents per $100 invested, pushing its yield up to 2.21 percent at 4:10 p.m. Eastern time from 2.16 percent late Tuesday. That's the highest since August.
Demand was weak at the Treasury Department's auction of $21 billion of 10-year notes. The notes were priced to yield 2.27 percent, higher than the 2.24 percent that 10-year notes yielded in the open market at that hour. That means bidders' prices were lower than market prices at the time.
There also were fewer bids than usual. Traders bid on $2.86 for every dollar worth of notes sold, compared to a four-auction average of $3.14. The lower ratio reflects falling demand.
Treasury prices have been decreasing for a week, ending an eight-month rally. The 10-year yield closed as high as 3.74 percent in February, and fell last month to a record-low 1.71 percent. Falling prices drive yields higher.
The Federal Reserve helped fuel the recent run-up by reshuffling its portfolio of Treasurys. It is buying longer-term notes and bonds and selling the same amount of shorter-dated Treasury securities. The goal is to encourage lending and investment by reducing long-term interest rates.
Fed policymakers considered a range of bolder actions, including outright bond purchases, according to minutes of their September meeting released Wednesday. Two members of the committee said the weakening economy might require more bond-buying by the Fed.
The 30-year bond's price fell $1.84 for every $100 invested, pushing its yield to 3.19 percent from 3.11 percent late Tuesday.
The yield on the two-year Treasury note fell to 0.29 percent from 0.32 percent. The yield on the three-month Treasury bill rose to 0.02 percent from 0.01 percent. Its discount wasn't available.