Bond prices were higher on Tuesday after a new sale of five-year notes saw solid demand, and the U.S. yield curve flattened to five-year lows ahead of a busy data calendar and Federal Reserve meeting statement.
Tuesday's price gains paused briefly as the Treasury sold $35 billion of five-year notes, the second sale of a total of $93 billion in new coupon-bearing supply this week. They resumed after the auction saw solid demand.
Direct bidders bought the largest share at a five-year auction since December 2012, and primary dealers took the smallest allocation for a five-year sale on record.
Five-year notes rose 1/32 in price after the announcement.
Benchmark 10-year Treasury notes—used to calculate mortgage rates and other consumer loans—gained 7/32 in price to yield 2.46 percent. Meanwhile, 30-year bonds rose 20/32 in price to yield 3.22 percent, its lowest level in a year.
Long-dated Treasurys have been gaining against short- and intermediate-dated debt as investors reach for higher yields at the long end, and worry about the Federal Reserve potentially raising interest rates next year.
The yield spread between U.S. five-year notes and 30-year bonds flattened to its lowest level since 2009 on Tuesday at 153 basis points.