Treasurys turn higher after 3-year note auction


U.S. government bonds edged higher on Tuesday after the U.S. government's auction of three-year Treasury notes, the first of three debt auctions this week.

The Treasury Department auctioned $30 billion in three-year notes at a high yield of 0.802 percent. The bid-to-cover ratio, an indicator of demand, was 3.25.

The Treasury will sell $21 billion in 10-year notes on Wednesday and $13 billion in 30-year bonds on Thursday.

"The auctions are the main event in Treasury space," said Ian Lyngen, a senior government bond strategist at CRT Capital in Stamford, Connecticut, in a research note.

Traders have said that the auctions will likely attract buyers after last week's drop in Treasury prices.

The yield on the benchmark 10-year U.S. Treasury note rose 18 basis points to 2.79 percent last week after a calming of geopolitical tensions in Russia and Ukraine and stronger-than-expected U.S. jobs data triggered selling of safe-haven bonds.

The 10-year yield hit 2.82 percent on Friday, its highest level in six weeks. Bond yields move inversely to their prices.

While remaining mostly flat, benchmark Treasurys prices edged lower on Tuesday after the release of Commerce Department data showing U.S. wholesale inventories rose more than expected in January, though sales posted their largest decline in nearly five years.

The rise in wholesale inventories could hint at more positive U.S. gross domestic product growth for the first quarter, said Vishal Khanduja, fixed income portfolio manager at Calvert Investments in Bethesda, Maryland.

The 10-year U.S. Treasury note last traded up 4/32 in price to yield 2.77 percent, down slightly in price from late Monday, when the yield was at 2.784 percent.

Prices have remained stable despite concerns surrounding Russia and Ukraine and recent data showing China's exports unexpectedly tumbled 18 percent year-on-year in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world's No. 2 economy.

Ousted leader Viktor Yanukovich said on Tuesday he remained Ukraine's legitimate president and commander-in-chief, saying he would return to Kiev and appealing to the armed forces to defy any "criminal orders" handed down by his foes.

While their impact on the bond market remained subdued on Tuesday, weakness in China and tensions over Ukraine and Russia could spur safe-haven bids for Treasuries in the near-term.

"We might see some market disruptions from these two issues," said Khanduja of Calvert. He said, however, that the 10-year Treasury yield will likely stay within a range of 2.70-2.80 percent this week.

The U.S. Federal Reserve bought $1.15 billion in Treasuries maturing between Feb. 2036 and Aug. 2043 on Tuesday, which had a muted impact on Treasuries prices.

The 30-year U.S. Treasury bond last traded up 9/32 in price to yield 3.71 percent.

—By Reuters