Investors snap up $35 billion of Treasury notes despite debt drama

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The U.S. Treasury on Tuesday easily sold $35 billion of new two-year notes as investors stepped up to buy despite the debt drama in Washington.

The notes were sold at an annualized yield of 0.417%, slightly below expectations, according to bond dealer CRT Capital Group.

Indirect bidders, investors that include foreign central banks, bought 27.7% of the notes, up from the 22% share they took at the last two-year note auction on June 27.

Many investors stayed sidelined at the last auction, which forced Wall Street dealers to take 64.5% of the two-year notes in that offering. This time dealers ended up with a much smaller 52.3% share.

Democrats and Republicans haven’t agreed on a plan to raise the $14.3-trillion federal debt ceiling ahead of the Aug. 2 deadline set by the Treasury. Without a higher ceiling by next week’s deadline the Treasury says it risks defaulting on debt payments or other obligations such as Social Security payments.

The U.S. also is at risk of losing its AAA credit rating.

But as the latest note auction illustrates, Treasury investors aren’t showing much fear about either default risk or downgrade risk. Market yields on Treasuries were down across the board Tuesday, despite some upbeat economic data. The 10-year T-note yield fell to 2.95% from 3.00% on Monday.

The government will be back in the market on Wednesday and Thursday, selling $35 billion of five-year notes and $29 billion of seven-year notes, respectively.

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-- Tom Petruno