Treasurys prices bounce off morning lows after solid demand at latest round of auctions

Treasurys little changed after latest auctions

NEW YORK — Bonds were little changed Tuesday after auctions for one- and two-year Treasurys showed solid demand for the safety of government debt.

Traders were relieved to see investors eager to buy Treasurys, helping push their prices off of their lows for the day. Treasurys had fallen slightly Tuesday morning after better-than-expected housing prices and consumer sentiment data indicated the economy might be rebounding.

“Right now, the bid-to-cover ratio looks very healthy,” William Larkin, a fixed income portfolio manager at Cabot Money Management, said of the ratio that indicates demand at the auctions.

The government auctioned off $42 billion in two-year Treasury notes and $27 billion in one-year bills.

The bid-to-cover ratio on the two-year note was 2.68 percent, just below the 2.75 percent ratio during a similar auction last month.

The price of the two-year note was unchanged at about 99 30/32. Its yield dipped to 1.02 percent from 1.03 percent late Monday.

Over the long term, though, there is a concern about oversupply, said Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds. The government’s huge spending levels for its economic stimulus efforts could eventually lead to the market for government debt becoming saturated.

If demand wanes, it would force the government to lure buyers with higher returns, which would increase borrowing costs on consumers loans that are tied to long-term Treasury yields.

However, in the near term, investors are still uncertain enough about the timing and size of a potential economic rebound that they are willing to purchase Treasurys because of their safety, Cuggino said.

The government will issue $39 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday.

Treasury prices fell modestly early Tuesday as investors moved back into stocks after the Standard & Poor’s/Case-Shiller U.S. National Home Price Index showed its first quarterly increase in three years. The report also showed prices rose for the second consecutive month.

A better-than-expected report from the Conference Board on consumer confidence also buoyed stocks early Tuesday at the expense of Treasurys. The private research group’s closely watched index on consumer sentiment rose to 54.1 in August, far above the 47.5 expected by economists polled by Thomson Reuters.

Signs of stabilization or improvement in the economy have typically led investors to move into riskier stocks at the expense of the safety of government bonds.

On Tuesday, the benchmark 10-year Treasury note rose 9/32 to 101 17/32, sending its yield down to 3.44 percent from 3.48 percent late Monday.

In other trading, the 30-year bond rose 23/32 to 104 21/32, and its yield fell to 4.23 percent from 4.27 percent.

The yield on the three-month T-bill rose was unchanged at 0.15 percent. Its discount rate was 0.16 percent.

The cost of borrowing between banks fell. The British Bankers’ Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — dipped to 0.38 percent from 0.39 percent.