Kooper blog

Treasury prices fall after auction of 3-year notes

NEW YORK – Treasurys extended a weeklong fall on Tuesday after the government sold $32 billion in new debt. The yield on the 10-year note rose to the highest level in 10 months.

The government auctioned three-year notes at a yield of 1.34 percent. That's the highest rate for a sale of three-year notes since last May.

Foreign buyers showed weak interest in the sale. Indirect bidders, a rough proxy for foreign funds and banks, took 27 percent of the notes, the lowest share since May 2007.

Thomas Simons, a market economist at Jefferies & Co, pointed to data that show fewer foreign buyers turning up for short-term Treasury auctions. Why?

"Other markets are doing better, whether stocks or commodities," he said. "Even emerging market debt looks pretty good as long as you're not buying Egypt bonds."

Traders have been selling Treasurys recently, raising their yields, in response to better economic news. A strong manufacturing report and a drop in the unemployment rate to 9 percent spurred a sell-off last week. Three-year notes were paying a 0.50 percent yield as recently as November.

In afternoon trading, the 10-year note lost 40.6 cents. The drop in price pushed its yield to 3.73 percent from 3.64 percent late Monday. That's the highest 10-year yield since last April.

Banks and other lenders commonly use the yield to set interest rates on mortgages and other forms of debt.

The 30-year bond lost 93.7 cents. The yield rose to 4.76 percent from 4.70 percent late Monday.

Tuesday's auction was the first of three this week, which will raise a total of $72 billion to finance the government's budget deficit. The next comes Wednesday with the sale of $24 billion in 10-year notes.