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Blowout Treasury note sale shows no fear of Fed

October 27, 2009 | 11:44 am

Cancel those worries about investor indigestion in the Treasury bond market, at least for today: The government’s auction of a record $44 billion of two-year notes was a blowout, as buyers bid aggressively.

That has triggered a rally across the board in Treasuries, driving yields lower after their uptrend in recent days.

The two-year T-notes were sold at an annualized yield of 1.02%, compared with an expected yield of 1.05% in a Bloomberg News survey of bond dealers.

Investor bids totaled $3.63 for every $1 in notes offered, a huge increase from the average $2.77 in bids per $1 offered at the last 10 auctions of two-year notes.

Ian Lyngen, a government bond strategist at CRT Capital Group in Stamford, Conn., called it a "very strong auction."

Robust demand for the notes suggests many investors don’t believe the Federal Reserve will be raising short-term interest rates anytime soon. That sentiment was reinforced today by the latest dismal report on consumer confidence.

The Treasury will auction $41 billion of five-year notes on Wednesday and $31 billion of seven-year notes on Thursday as it continues to borrow record sums to finance the federal deficit.

The 10-year T-note yield, a benchmark for mortgage rates, has pulled back to 3.47% today from 3.55% on Monday.

Falling Treasury yields could help California, which today launched a sale of at least $3 billion in tax-free bonds to refinance previously issued "economic recovery bonds" -- the debt voters authorized in 2004 to bail the state out of that year’s budget mess.

-- Tom Petruno