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Sale of two-year Treasury notes attracts strong demand

The government sells a record $43 billion in two-year Treasury notes at a yield of 1.03%.

September 23, 2009|Tom Petruno

Despite its already-record borrowing binge this year, the U.S. Treasury demonstrated Tuesday that it's having no trouble selling more debt.

Investors flocked to the government's sale of a record $43 billion in two-year Treasury notes, resulting in the strongest demand at any two-year note sale since September 2007.

The notes were sold at a yield of 1.03%, about as expected.

The Treasury said it got $3.23 in bids for every $1 in notes offered, up from an average of $2.79 per $1 in the last eight two-year note auctions.

The Federal Reserve is virtually certain to announce after its meeting today that it remains committed to keeping its benchmark short-term interest rate near zero indefinitely. Given that expectation, many investors see no risk of a significant rise in Treasury bond yields -- and no reason not to lock in current yields.

"Demand remains robust," said George Goncalves, head of fixed-income strategy at bond dealer Cantor Fitzgerald in New York.

It also helps that the Fed continues to buy Treasuries for its own account, although that buying program is supposed to be nearing its end. The Fed has purchased $289 billion of Treasuries in various maturities this year under a program that's supposed to cap at $300 billion.

The Treasury's borrowing wave to fund the federal budget deficit will continue today with the sale of $40 billion in five-year notes. On Thursday the government will sell $29 billion in seven-year notes.

Enough investors, including foreigners, remain enamored of Treasuries even though the falling dollar shows that many people are finding better things to do with their cash than buy dollar-denominated bonds.

The greenback slumped again Tuesday against other key currencies. The euro rose to $1.479, a one-year high, from $1.468 Monday.

A closely watched index of the dollar's value against six other major currencies slid 0.8% to a 52-week low. It's down 6.4% this year.

The dollar's latest decline in part reflects the fact that investors are feeling better about the global economy and are selling dollars to invest in riskier securities abroad, analysts say.


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