Treasury prices gave up most of their gains Monday after an auction for inflation bonds was met with modest demand from foreign investors and traders braced for new supplies of debt to hit the market.
Bonds had started higher after Greece's borrowing costs soared again and Germany said it wanted to see more austerity measures from Athens.
Those gains mainly evaporated in the afternoon following moderate demand, especially from foreign investors, at an auction for 5-year Treasury Inflation-Protected Securities, or TIPS.
The bid-to-cover ratio, which measures how many bids were accepted versus the total number of bids, fell to 3.15 from the very strong level of 3.43 at an auction for 10-year TIPS earlier this month.
Also, the percentage of indirect bidders, a category that includes overseas central banks and other large investors, fell to 23 percent from 37 percent. Central banks in China, Japan and South Korea are major purchasers of U.S. Treasurys, and demand from them has helped keep interest rates for the U.S. government and other borrowers low.
Investors were also looking ahead to three significant auctions of Treasury notes this week: $44 billion of 2-year notes on Tuesday; $42 billion of 5-year notes on Wednesday; and $32 billion of 7-year notes on Thursday.
Bond investors tend to pull back on their purchases ahead of auctions in hopes of driving Treasury prices lower and getting better deals at the auctions.
The latest cause for worry in Greece sent some investors into the relative safety of Treasurys, pushing the price of the 10-year note up as much as 7/32 in the morning.
Athens triggered a bailout package last week after its borrowing costs soared, but on Monday Germany said it still wanted to see more spending cuts. That complicated Europe's efforts to reassure markets and get Greece low-interest loans in order to meet its obligations. Greece's austerity measures to date have already led to street protests and strikes.
The yield on the benchmark 10-year bond maturing in February 2020 was 3.81 percent in late trading, down slightly from 3.82 percent late Friday. Its price rose less than 1/32 to 98 16/32. That yield is widely tied to consumer borrowing rates on mortgages and other kinds of loans.
In other trading, the yield on the 2-year note that matures in March 2012 slipped to 1.07 percent from 1.08 percent. Its price rose less than 1/32 to 99 28/32.
The yield on 30-year bond that matures in February 2040 was unchanged at 4.67 percent. Its price was flat at 99 9/32.
The yield on the 3-month T-bill that matures July 29 was fell to 0.14 percent from 0.15 percent. Its discount rate was 0.15 percent.
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