Treasury easily sells record $40 billion in two-year notes

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The bond market had a welcoming gift for new Treasury Secretary Timothy Geithner today: The government had no trouble selling a record sum of two-year notes.

Strong bidding at the auction of $40 billion of notes could help allay worries that the Treasury’s massive borrowing plans for this year will run into waning investor demand.

The auction also is a sign that many investors remain too fearful to put their money into anything without an iron-clad guarantee of principal.

‘It tells you everybody’s still looking for safety,’ said John Canavan, a fixed-income analyst at Stone & McCarthy Research in Skillman, N.J.

Investors put in $107 billion in bids for the two-year notes, compared with bids totaling $81 billion when the Treasury offered $38 billion in two-year securities for sale last month.

The annualized yield on the new two-year T-notes was 0.925%, just slightly above the yield at the December auction.

Still, shorter-term securities typically are easier for the government to sell than longer-term issues. Yields have rebounded on 10-year and 30-year Treasuries in recent weeks from last month’s record lows, suggesting that investors were beginning to balk.

Today, however, longer-term yields eased a bit. The 10-year T-note fell to 2.53% from 2.64% on Monday.

The Treasury expects to borrow record sums this year to fund the financial-system bailout program and President Obama’s proposed economic-stimulus spending plan.

Next up: The Treasury will auction $30 billion in five-year notes on Thursday.

-- Tom Petruno