Treasurys attract solid demand even as stocks rise

NEW YORK — A strong auction of two-year notes helped support the bond market Tuesday, sending Treasury yields lower.

In afternoon trading, the price of the benchmark 10-year note rose 10/32 to 101 14/32 and its yield fell to 3.45 percent from 3.49 percent late Monday.

“There’s been plenty of demand for U.S. Treasurys,” said Christopher Garman, president of Garman Research, adding that it has been somewhat surprising how well Treasurys have held up amid a nearly seven-month rally in stocks and as fears of inflation linger.

Investors’ appetite for Treasurys has been strong in recent weeks despite long-term concerns that the immense amount of debt being issued to support the government’s stimulus programs could overwhelm the market. If demand fell consistently, the government would be forced to raise rates to lure buyers, which would send prices lower.

Treasurys had been rising ahead of Tuesday’s auction, and extended their gains after the issuance of $43 billion in 2-year notes garnered good demand.

The bid-to-cover ratio, a measure of demand, was 3.23 — the highest since September 2007, said Howard Simons, strategist with Bianco Research in Chicago. Demand from foreign investors was also strong.

The two-year note rose 2/32 to 100 2/32, while its yield slipped to 0.96 percent from 0.99 percent.

Later this week, the Treasury will auction $40 billion in five-year notes and $29 billion in seven-year notes.

The gains in Treasurys came even as stocks rose moderately. Treasurys, which are considered to be a relatively safe asset, often suffer when riskier assets like stocks rise.

“For a long time here, Treasurys were the anti-stock, but now they are going up when stocks are going up,” Simons said. With all the liquidity being pumped into the markets, assets of all kinds are benefiting.

Stocks rose Tuesday as the dollar fell and commodities rebounded ahead of the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday.

The Fed is expected to keep its benchmark interest rate at a record low of near zero, but investors will be looking for any indication of when the central bank might raise rates in the future to fend off inflation. Inflation, which can be triggered by a weak dollar, erodes bonds’ fixed returns over time.

In other trading, the price of the 30-year bond rose 20/32 to 105 2/32. Its yield fell to 4.20 percent from 4.24 percent.

The yield on the three-month T-bill was unchanged from 0.09 percent. Its discount rate was 0.1 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.