Treasury prices fall after 5-year note auction

NEW YORK — Treasury prices fell Wednesday, pushing their yields higher, after results from an auction of five-year notes showed weaker demand for government debt.

Prices had been relatively flat throughout the morning, along with stocks, ahead of the Federal Reserve Board’s interest rate decision.

Both overall demand as well as demand from overseas investors were weaker at the Treasury Department’s auction of $40 billion in five-year notes compared with the previous auction of notes of the same maturity last month.

The bid-to-cover ratio, a measure of overall demand, was 2.40, below the 2.51 level at last month’s auction. Indirect bidders, a measure of foreign demand, fell to about 45 percent from about 56 percent.

The price of the five-year note fell 4/32 to 99 21/32, sending its yield up to 2.44 percent from 2.42 percent late Tuesday.

The price of the benchmark 10-year note fell 10/32 to 101 4/32 and its yield rose to 3.49 percent from 3.45 percent. The yield on the 10-year note is closely tied to rates on consumer loans such as mortgages.

Wednesday’s auction results followed strong demand for 2-year notes at an auction a day earlier. Demand for $43 billion in 2-year notes on Tuesday was the strongest for that maturity since September 2007.

The higher demand for shorter-term notes and waning interest in longer-dated notes could be another sign that investors are concerned about the long-term effects of massive government stimulus spending on inflation.

There is some worry that the amount of government debt being issued to stimulate the economy could saturate the bond market. If demand steadily falls, the government would be forced to raise rates to lure buyers. That in turn would send prices lower.

Treasurys were little swayed throughout the morning ahead of the Fed’s announcement. The Fed is widely expected to keep its key interest rate at near zero percent.

Investors are waiting to see if the central bank provides any guidance on when it might start raising rates. If the Fed is forced to raise interest rates soon because of worries about inflation, that would eat into profits investors receive on Treasurys.

In other trading, the price of the 30-year bond fell 28/32 to 104 5/32. Its yield rose to 4.25 percent from 4.20 percent.

The yield on the three-month T-bill rose to 0.11 percent from 0.09 percent.

The cost of borrowing between banks held steady. The British Bankers’ Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — was unchanged at 0.29 percent.