Treasury debt prices were steady at flat to lower levels Wednesday following relatively decent demand in a record-large auction of 2-year notes.
The $30 billion auction of 2-year notes had a bid-to-cover ratio of 2.21, compared with an average bid-to-cover of 2.30 in the three previous 2-year note auctions of 2008, while indirect bidders took 33 percent of the notes compared with about 22 percent in the previous three such auctions this year.
The benchmark 10-year Treasury note was trading 11/32 lower in price for a yield of 3.74 percent from 3.70 percent late Tuesday, while the 2-year Treasury note was trading unchanged in price for a yield of 2.20
Longer-dated issues fell in the face of a rising stock market.
Stocks rose as investors bet that Apple would post robust quarterly results, sending the Nasdaq up more than 1 percent, while Boeing's stronger-than-expected profit offset concerns about the health of the financial sector. Apple's earnings are due after the close.
Meanwhile, the two-year sector of the bond market shrugged off the effects of a record $30 billion auction of two-year notes later in the session, but just barely. The auction will be followed by a $19 billion sale of five-year Treasurys on Thursday.
"Two-year notes have underperformed massively in recent days so I think the market has set up for that supply," said Carl Lantz, US interest-rate strategist at Credit Suisse in New York.
"There is some concern, given how much two-year notes had sold off, that this auction could actually go pretty well. Even though it is so large, two-year notes have cheapened up tremendously."
Five-year notes were down 3/32, yielding 2.97 percent.
Benchmark 10-year notes reversed the previous session's gains, falling 14/32 and pushing the yield up to 3.76 percent from 3.70 percent late on Tuesday.
Thirty-year bonds fell 1-4/32, pushing yields up to 4.52 percent from 4.45 percent.
"Stocks are up and that certainly is helping the sell-off," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle.
"But also, the belief continues to grow that we're closer to the end of the problems in the credit cycle, which is going to limit what the Fed needs to do. That's certainly a debatable point, but that is a growing belief."