European bank worries push US rates lower; 3-year note auctioned at record low yield

Tuesday, September 7, 2010

Treasurys gain; 3-year yield reaches a record low

NEW YORK — Renewed worries over Europe’s banking system sent investors into Treasurys on Tuesday, helping the government nab a record low interest rate in its sale of three-year notes.

The government sold $33 billion in three-year notes at a yield of 0.79 percent, the lowest yield for the note on record. The auction drew bids worth 3.2 times the amount on offer. It marked a successful start for the first of three Treasury Department auctions this week, expected to raise a total of $67 billion.

The Treasury market has recently looked volatile, buffeted by each piece of economic news, said Dan Greenhaus, chief economic strategist at Miller Tabak.

Last week, yields were pushed higher by a better-than-expected employment report from the Labor Department and manufacturing data. On Tuesday, they reversed course. The yield on the benchmark 10-year note, which moves in the opposite direction from its price, slid to 2.60 percent, a drop from 2.71 percent late Friday. Its price climbed 87.5 cents to $100.18.

Fears that the U.S. economy will slide back into recession act like an anchor on yields. Greenhaus said it would take much more optimistic economic news to push 10-year yields above 3 percent. At the moment, traders are banking on more Treasury buying from the Federal Reserve.

In other trading, the two-year note inched up 6.2 cents to $99.75, and its yield fell to 0.50 percent from 0.53 percent. At the long end, the 30-year jumped $2.18 to $103.81, lowering the yield to 3.66 percent from 3.78 percent.

The yield on the three-month T-bill was unchanged at 0.12 percent. Its discount was 0.13 percent.

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