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10-year Treasury note yield at six-week high as haven demand ebbs

October 11, 2011 | 12:06 pm

It turns out there is another direction for Treasury bond yields besides down.

The benchmark 10-year Treasury note yield rose Tuesday to its highest level in six weeks as the government tests the market this week with $66 billion in new note and bond sales.

The 10-year yield was at 2.16% at noon PDT, up from 2.08% on Friday and the highest since Aug. 31. The 30-year T-bond yield was at 3.11%, up from 3.02% on Friday and the highest since Sept. 20.

Yields also rose in the shorter-term end of the bond market as the government sold $32 billion of new three-year T-notes at a yield of 0.54%. The yield on previously issued three-year notes has jumped from a low of 0.29% on Sept. 1.

The rise in yields Tuesday partly reflects the bond market’s delayed reaction to the stock market’s surge on Monday, when bond trading was shuttered for the Columbus Day holiday. Stocks soared on Monday, with the Dow Jones industrial average gaining 330 points, or 3%, to 11,433, partly on hopes that European leaders are moving closer to a long-term solution for their debt crisis. Investors moving into stocks often are simultaneously selling lower-risk assets, such as Treasuries.

But the rebound in bond yields over the last few weeks also may reflect that pessimism about the global economy -- and the rush for the relative haven of Treasuries -- had just gotten overdone. The U.S. economy is weak, but it hasn’t fallen off a cliff in recent months, as Friday’s September employment report showed.

The 10-year T-note yield hit a 60-year low of 1.72% on Sept. 22. That followed the Federal Reserve’s announcement that it would shift $400 billion of its Treasury holdings from shorter-term issues into longer-term issues, including the 10-year T-note, by mid-2012.

The Fed’s purchases of longer-term bonds are expected to help keep those yields suppressed. Still, as the yield back-up in recent weeks shows, even the Fed’s buying power hasn’t been enough to keep bond rates at 60-year lows.

With Uncle Sam’s voracious need for fresh cash, “We still have auctions to get through,” said Ray Remy, head of fixed income at Daiwa Capital Markets in New York.

The three-year auction Tuesday saw healthy demand, Remy said. The bigger test will be the Treasury’s sale of $21 billion in 10-year notes on Wednesday and the sale of $13 billion in 30-year bonds on Thursday.


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-- Tom Petruno

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Photo: A statue of Albert Gallatin, a long-serving U.S. secretary of the Treasury, in front of the U.S. Treasury building in Washington, D.C. Credit: Brendan Smialowski / Bloomberg News