Yields push higher after Treasury note auction draws weaker demand for third straight day

Interest rates higher after weak Treasury auction

CHARLOTTE, N.C. — Interest rates ticked higher in the bond market Thursday after a government debt auction drew lackluster demand for a third straight day.

Testimony from Federal Reserve Chairman Ben Bernanke that affirmed his pledge to keep interest rates near zero for an extended period did little to sway investors.

A drop in prices sent yields higher, and the yield on the 10-year note hit its highest level in nine months.

The disappointing turnout for the Treasury Department’s $32 billion auction of seven-year notes was another sign this week that demand for bonds could be waning. Demand for five-year and two-year notes earlier in the week was also tepid.

The yield on the benchmark 10-year note maturing in February 2020 rose to 3.89 percent in late trading Thursday from 3.86 percent late Wednesday. Its price fell 6/32 to 97 28/32. The yield of the 10-year note is linked to interest rates on mortgages and other consumer loans.

The yield on the seven-year note rose to 3.33 percent from 3.29 percent. Its price fell 6/32 to 98.

In the Treasury’s seven-year note sale, the bid-to-cover ratio, a measure of demand, came in at 2.61, lower than the 2.98 in an auction for notes with a similar maturity in February and 2.85 in January.

The auction ended this week’s $118 billion sale of new Treasury debt. The government has been auctioning a steady stream of bonds for months to fund its economic stimulus efforts.

Although most of the sales have gone well, demand for this week’s auctions — including $44 billion in two-year notes Tuesday and $42 billion in five-year notes Wednesday — was weaker than at other recent sales. A few weak auctions doesn’t necessarily mean that demand will continue to fall long term, analysts say.

In other trading, the yield on the two-year note that matures in March 2012 fell to 1.09 percent from 1.10 percent Wednesday. Its price rose 1/32 at 99 26/32.

The yield on 30-year bond that matures in February 2040 rose to 4.76 percent from 4.74 percent. Its price fell 12/32 to 97 26/32.

The yield on the three-month T-bill that matures June 24 was unchanged from 0.13 percent. Its discount rate was 0.14 percent.