Diminishing Appeal of U.S. Treasuries

Another week of U.S. Treasury note auctions diminished the appeal of U.S. debt securities on March 10 as investors ventured back into the stock market, pushing the Dow Jones industrial average up to its strongest close of the year.

The U.S. Treasury kicked off a fresh week of note sales totaling $63.0 billion with its $34.0 billion auction of new three-year notes. The auction had a bid-to-cover ratio of 2.26, which was well below the prior ratio of 2.67 and also below 2.42, the average ratio of the last 10 auctions. Bid-to-cover ratios measure interest in note auctions by comparing the number of bids with the amount of notes sold. A ratio exceeding 2.0 indicates a successful auction.

The auction drew healthy demand from indirect bidders, which include foreign central banks, who took 40.3% of competitive bids. The notes paid 1.489% at the high yield, at which point 10.54% were allotted. The securities had a median yield of 1.419%. In comparison, the outstanding three-year issue had closed on March 9 at a yield of just 1.384%.

Mounting U.S. government debt needed to bolster the U.S. financial system has diminished the appeal of U.S. Treasuries, which have typically been considered a safe-haven bet. That, combined with an optimistic memo from Citigroup's chief executive, Vikram Pandit, seemed to coax investors back into U.S. equities.

Prices fell on U.S. Treasuries, lifting yields on securities across the maturity spectrum. The benchmark 10-year Treasury note's yield cracked 3.0%, ending at 3.01%, compared with 2.89% late March 9. The 30-year Treasury bond's yield rose to 3.73% late March 10, from 3.59% previously. The iShares 10-20 Year Treasury Bond ETF (TLH), which tracks the prices on long-dated government debt, lost $1.21, or 1.1%, to close March 10's trading session at $112.35.

The yield on the two-year Treasury note rose to 1.04% late March 10 and the iShares 1-3 Year Treasury Bond ETF (SHY) shed 5 cents, or 0.1%, to close at $83.84.

On March 11, the U.S. government auctions $18.0 billion in reopened 10-year Treasury notes. On March 12 - $11.0 billion in reopened 30-year bonds.