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Treasury Department auctions $26 billion of 2-year notes at a high yield of 0.540%

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Scott Olson | Getty Images

Treasury yields rose on Monday after the government's sale of two-year notes, the first part of this week's $90 billion in fixed-rate U.S. debt supply.

The Treasury Department auctioned $26 billion in two-year notes at a high yield of 0.540 percent—the lowest since January. The bid-to-cover ratio, an indicator of demand, was the weakest since December at 3.30. That was a bit light of the recent average of 3.42.

In the "when-issued" sector, traders had expected the notes due in April 2017 to fetch a yield of 0.5480 percent.

Direct bidders, which includes domestic money managers, brought 15 percent, which was unchanged from the recent average. Indirect bidders, which include major central banks, were awarded 38 percent, also unchanged from the recent average.

Benchmark 10-year Treasurys note yields were at 1.923 percent, up 1 basis points from Friday, while two-year note yields rose 2 basis points to 0.52 percent.

Prices declined earlier as traders were reluctant to make big bets ahead of the two-day Federal Reserve policy meeting that begins on Tuesday.

Analysts expected no change in policy stance from the Federal Open Market Committee as recent domestic data have been weaker than forecast and a strong dollar has crimped export activities.

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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The reshuffle is seen a move by Athens to obtain fresh funds in exchange for domestic reforms before it runs out of cash in June. "Greece remains a concern and we are seeing choppiness from overseas markets affecting U.S. yields a bit," Rehling said.

Greek 10-year yields fell almost half a percentage point to 12.12 percent, which was not far from near 2-1/2 year peaks as a deal between the cash-strapped nation and its creditors remains elusive. Lower peripheral euro zone yields led to modest selling in low-risk U.S. and German government debt.

"I expect the Fed to do nothing. I don't think the data are there for them to be tweaking things," said Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors in St. Louis, Missouri.

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The U.S. bond market was weaker earlier Monday as traders reduced their safe-haven holdings in Treasurys and German Bunds on a drop in Greek debt yields following news that Greek Prime Minister Alexis Tsipras reorganized his team that has been negotiating with international lenders.