Two-year U.S. Treasury yields rose to nine-year highs on Tuesday as investors focused on new supply that will be sold into light trading conditions this week, and on large increases in issuance expected in 2018.
The U.S. Treasury Department sold $26 billion of two-year, fixed-rate government notes at a yield of 1.922 percent, the highest yield at a two-year auction since September 2008, Treasury data showed.
The ratio of bids to the amount of two-year Treasurys offered was 2.52, the lowest reading in a year. This gauge of overall auction demand was 2.73 at the previous two-year note sale in November.
It's the first sale of $88 billion in new short- and intermediate-dated coupon supply this week. It will be sold into relatively illiquid conditions with many traders and investors away after Monday's Christmas holiday.
At the same time, investors are preparing for the U.S. government to increase auction sizes next year for the first time since 2008 to make up for declining purchases by the Federal Reserve.