Interest rates mixed investors despite strength in gov’t auction of $40M in three-year notes

Rates trade in narrow range after auction

CHARLOTTE, N.C. — Interest rates fell in the bond market Tuesday as prices rose in response to another well-received auction of new Treasury notes.

The government reported higher demand for its sale of $40 billion in three-year notes. That soothed investors’ ongoing concerns that the continuing flow of new bonds into the market would depress prices.

However, a modestly higher stock market drained some cash out of Treasurys. Treasury bond prices usually fall and yields rise when the stock market goes up. That’s because traders view government bonds as safe investments, while stocks typically are seen as risky but also offering bigger returns.

The Dow Jones industrial average gained nearly 12 points on the one-year anniversary of the stock market’s reaching bottom after plunging amid the financial crisis and recession. The Dow is up 61 percent from 6,547, its close on March 9, 2009.

The government has been auctioning a steady stream of bonds for months to fund its economic stimulus efforts. Although most of the sales have gone well, investors still await the results of each sale with some trepidation. And an auction that is respectable or surprisingly good tends to give Treasurys a bit of a relief rally. On Tuesday, that relief allowed the government debt market to break its usual inverse relationship to stocks.

In the Treasury’s three-year note sale, the bid-to-cover ratio, a measure of demand, came in at 3.13, higher than the 2.83 in an auction for notes with a similar maturity in February.

In the market for already issued debt, the yield on the three-year note that matures in February 2013 fell to 1.38 percent from 1.42 percent.

Meanwhile, the yield on the 10-year Treasury note that matures in February 2020 fell to 3.71 percent late Tuesday from 3.72 percent late Monday. Its price rose 3/32 to 99 10/32. The 10-year yield is a benchmark for many consumer loans. Bond prices move in the opposite direction as their yields.

In other trading, the yield on the 30-year bond that matures in February 2040 fell to 4.68 percent from 4.69 percent. The price rose 3/32 to 99 3/32.

The yield on the two-year note that matures in February 2012 fell to 0.88 percent from 0.90 percent. Its price rose 1/32 to 99 31/32.

The yield on the three-month T-bill that matures June 10 was unchanged from 0.14 percent. Its discount rate stood at 0.15 percent.