U.S. short-term Treasurys dipped Tuesday in thin volume as climbing stocks cut off any safe-haven bid while Americans headed to the polls to elect a new president.
Shorter-term debt prices also weakened on continued signs of a thawing in short-term lending markets and some ongoing worries over a wave of pending debt supply.
Signs that short-term lending markets may be freeing up "was a little comforting for the risk-takers and takes away from the bid in Treasurys," said John Spinello, Treasury bond strategist with Jefferies & Co in New York. "There is also a psychological supply overhang in the market because of all of the debt that is going to be coming."
While short-term Treasury bill rates -- which move inversely to prices -- moved up, benchmark 10-year Treasury notes were trading unchanged in price for a yield of 3.91 percent.
Two-year notes -were trading 1/32 lower for a yield of 1.47 percent from 1.45 percent late Monday.
"Markets are in a wait-and-see mode in advance of today's U.S. presidential elections," said Chris Ahrens, strategist at UBS Securities in Stamford, Conn.
Global stocks rose overnight after Australia's central bank cut interest rates by an aggressive 3/4 of a percentage point.
U.S. stocks also moved higher Tuesday on hopes that global moves to end the credit crisis may ease an economic slowdown.
Democrat Barack Obama led Republican John McCain in the polls going into Tuesday's presidential election, but an Obama victory might not allow much more upside for stocks, and conversely downside for bonds, Spinello said.
"The expectation is for Obama to become president, and I think the market has discounted that to some extent, especially the stock market," he said, adding: "If McCain happens to upset I think the stock market would take that more positively and perhaps fixed income would sell off a little bit."
Any safe-haven bid for government bonds was also undermined by evidence of some further loosening in short-term credit, with London interbank offered rates (Libor) for three-month dollar fundsposting the 17th consecutive daily decline to the lowest level since early June.
The lower Libor rates were seen as a sign that the massive amounts of liquidity poured into the global banking system, combined with interest rate cuts around the globe, were thawing short-term loan markets that had all but completely frozen.
Such a thaw was taken by investors as a sign that the worst of the global credit crisis may have passed, which helped to boost stocks but ate away at government debt prices.
Any interest in bonds was also handicapped by concern over an expected raft of new debt to be issued in coming months to supply various government programs aimed at supporting the flagging financial industry.
The Treasury Wednesday will announce the terms of the quarterly refunding it will conduct the following week and which will bring a hefty amount of new supply to market.
Five-year Treasury notes were trading unchanged in price for a yield of 2.70, while the 30-year bond was 8/32 lower for a yield of 4.34 percent from 4.33 percent.