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Bond yields slide as buyers swarm at 10-year T-note sale

February 9, 2011 |  2:59 pm

Buyers finally stormed back into the Treasury bond market on Wednesday, grabbing yields that had surged in recent days to the highest levels since last spring.

The Treasury’s auction of $24 billion in 10-year notes lured a wave of investors, including foreigners. So-called indirect bidders, a category that includes foreign central banks, bought a record 71% of the notes, leaving just 28% for Wall Street dealers.

By contrast, on Tuesday dealers were stuck with 62% of the $32 billion in new three-year notes the Treasury auctioned, as other investors largely stayed away.

Buyers of the 10-year notes issued Wednesday got an annualized yield of 3.66%, down from the nine-month high of 3.74% on previously issued 10-year Treasuries on Tuesday.

The sudden rush to buy longer-term bonds implies that some investors believe interest rates have risen far enough from their fall lows, even if the economy continues to improve.

The auction “does add some support to the thesis that a top in yields might be near at hand or even in the rearview mirror,” said George Goncalves, a bond strategist at Nomura Securities in New York.

Yields on shorter-term Treasuries, which had soared over the last week, also pulled back. The two-year T-note yield slid to 0.80% from 0.85% on Tuesday; the five-year T-note dropped to 2.33% from 2.40%.

Federal Reserve Chairman Ben S. Bernanke, testifying on Capitol Hill, reiterated that the Fed would continue with its economic stimulus plan, including its program of Treasury bond purchases. That might have lent some support to bond prices, although Bernanke’s comments weren’t a surprise.

Next up: The Treasury completes this week’s bond sales with an auction of $16 billion in 30-year securities  on Thursday.

-- Tom Petruno

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