Aug. 23, 2010, 3:43 p.m. EDT

Treasurys advance after well-received debt auction

NEW YORK (MarketWatch) -- Treasury prices rose Monday, pushing yields down, after the government met with good demand for its sale of 30-year inflation-indexed securities in the first major auction of the week.

With no U.S. economic reports scheduled during the Monday session, traders looked toward data slated for release later this week and gyrations in U.S. stocks, which erased most of their early gains.

Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 2.60, -0.02, -0.61%) fell 1 basis point to 2.60%. Bond yields move inversely to prices, and a basis point is 0.01%.

Yields on 2-year notes /quotes/comstock/31*!ust2yr (UST2YR 0.48, -0.01, -2.43%) declined 1 basis point to 0.49%, near the lowest level on record.

Yields on 30-year bonds /quotes/comstock/31*!ust30y (UST30Y 3.67, +0.00, +0.08%) were little changed at 3.68%, after being higher for most of the session. Last week, the securities touched their lowest yield since April 2009.

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Benchmark 10-year notes have staged a strong rally for the past four weeks, pushing yields down to their lowest levels since March 2009.

Last week, surprisingly weak economic data spurred a rally in bonds, while stocks fell as investors sought the relative safety of government debt. See Friday's report on bond rally.

"In the very near term, there is limited upside for Treasurys" maturing in 10 or fewer years, said strategists at Nomura Securities.

Auction results
The Treasury Department sold $7 billion in Treasury inflation-indexed securities at a yield of 1.768%, lower than some analysts expected, which is an indication of good demand.

The sale was a reopening of February's sale of 30-year TIPS, meaning the securities will carry the same coupon and mature on the same date as the original securities. Before this year, the U.S. hadn't sold 30-year TIPS since 2001.

The TIPS mature in February 2040. Bidders offered to buy 2.78 times the amount of debt sold, compared to 2.23 times at the last sale in February. See bond-auction results.

Indirect bidders, a group which includes foreign central banks, bought 38.9% of the auction, compared with 42.4% of the last one. Direct bidders, a class which includes domestic money managers, bought 27.9%, up sharply from purchases totaling 6.4% in February.

"This shows there is good appetite for this sector at these levels," said bond strategists at RBS Securities.

A higher proportion of an auction going to indirect and direct bidders is considered good for the government and for the bond market. It indicates more interest from investors who are more likely to hold on to the securities longer.

That's better than when more goes to primary dealers, which tend to turn around and sell newly bought debt into the market. That puts pressure on prices.

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