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Treasury Two-Year Note Yields Rise Most in Month Before Auction

Treasury two-year note yields rose the most in more than a month as the government prepared to sell $38 billion of the securities, the first of three note auctions this week totaling $104 billion.

Yields on benchmark 10-year notes climbed to the highest level in more than a week as investors sought higher-yielding assets. Two-year note yields fell to 0.5516 percent on July 23, the lowest since the Treasury began regular sales of the securities in 1975. The S&P/Case-Shiller index of property values increased 4.6 percent from May 2009, the biggest year-over-year gain since August 2006, the group said.

“We remain under pressure ahead of supply,” said Richard Bryant, senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “We’ve also had stronger than expected home price numbers.”

The yield on 10-year notes increased 6 basis points, or 0.06 percentage point, to 3.05 percent at 12:29 p.m. in New York, according to BGCantor Market Data. The yield is the highest level since July 15.

Two-year note yields climbed as much as 6 basis points, the biggest increase since a gain of as much as 7 basis points on June 10. The notes yield 0.63 percent.

Treasuries pared losses earlier as U.S. stocks trimmed gains after the Conference Board’s confidence index fell in July to a five-month low, a sign the lack of jobs will limit the economy’s recovery. The measure dropped to a reading of 50.4, compared with a Bloomberg forecast of 51, from a revised 54.3 in June.

The Standard & Poor’s 500 Index was little changed.

Pre-Auction Trading

The two-year securities being offered today yielded 0.672 percent in pre-auction trading, versus the record low of 0.738 percent at the previous auction on June 22. Investors bid for 3.45 times the amount on offer last month versus an average of 3.18 for the past 10 sales.

Indirect bidders, the category of investors including foreign central banks, purchased 41.4 percent of the notes, versus the 10-sale average of 40.9 percent. Direct bidders, non-primary dealers that place their bids directly with the Treasury, bought 21.3 percent.

The Treasury is scheduled to auction $37 billion of five-year debt tomorrow and $29 billion in seven-year securities the following day.

U.S. home prices were forecast in a Bloomberg survey to rise 3.9 percent. The gain came as a government tax credit temporarily underpinned sales. A retreat in demand since the April 30 contract-signing deadline to be eligible for an incentive worth up to $8,000 signals home prices will slacken in coming months.

Inflation Protection

Yields indicate investors are becoming more willing to lend. The three-month London interbank offered rate for dollars, or Libor, fell for a 10th day, to 0.481 percent.

The gap between yields on U.S. 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, was at 1.80 percentage points today from this year’s high of 2.49 percentage points in January. The five-year average is 2.13 percentage points.

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