Investors rush back into Treasury bonds, pushing yields lower

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The jump in interest rates on U.S. Treasury bonds in the last two weeks may have run its course -- which would be good news for mortgage rates.

Yields on Treasury issues fell across the board Wednesday after the government saw robust investor demand at its sale of $21 billion in 10-year notes.

The notes were sold at a yield of 3.90%. The Treasury got bids totaling $78 billion for the securities, the largest amount of orders relative to the size of a 10-year offering since at least 1994, according to Bloomberg News data.

The backup in yields over the last two weeks -- which saw the 10-year T-note’s market yield rise to a 17-month high of 3.99% on Monday from 3.66% on March 22 -- was enough to pull investors in from the sidelines, traders said.

“Retail and institutional investors drew a line in the sand at 4%” on the T-note, said Tom Di Galoma, head of fixed-income rates trading at Guggenheim Capital Markets in New York.

The yield on five-year T-notes slid to 2.61% on Wednesday from 2.70% on Tuesday. The 30-year T-bond yield dropped to 4.74% from 4.83%. The Treasury will auction $13 billion of 30-year bonds on Thursday.

Falling government bond yields will help take pressure off mortgage rates, which tend to follow the trends in Treasury yields.

The bond market turned dicey two weeks ago after demand was weaker than expected at the government’s sale of $74 billion in new five-year and seven-year notes. Those auctions raised fears that investors were beginning to choke on the massive supply of Treasury debt, as the Obama administration funds its ballooning budget deficit.

Expectations of higher interest rates also were stoked by the government’s March employment report, which showed the economy added the most jobs in three years.

But Wednesday’s sale of 10-year notes demonstrated that many investors still are happy to take Uncle Sam’s bonds, even at what are relatively low interest rates historically.

Traders said demand probably got a boost from renewed jitters about European government debt: The yield on 10-year Greek government bonds soared Wednesday to 7.17%, up from 6.98% on Tuesday and the highest in more than a decade, after Greek banks asked the already cash-strapped government for more financial help.

-- Tom Petruno

Evan Vucci / Associated Press