U.S. Treasurys prices pared their gains on Tuesday, as Wall Street stocks staged a late rally after falling in response to the Federal Reserve downgraded outlook on the U.S. economic growth.
Benchmark 10-year Treasury notes last traded up 1 11/32 in price with a yield of 2.17 percent, down 15 basis points from late on Monday.
They had risen more than 2 points earlier and touched an intraday low of 2.038 percent, just below the 2.040 percent set in mid-December 2008 during the global financial crisis, according to Tradeweb.
The U.S. 30-year Treasury bond turned positive Tuesday, erasing earlier losses, after the Federal Reserve pledged to keep interest rates near zero through at least mid-2013 to support a flagging economy.
But the bond rally faded as stocks surged on Wall Street, with the Dow Jones Industrial Average jumping more than 400 points.
The 30-year bond last traded up 3/32 in price with a yield of 3.65 percent, down 1 basis point from late Monday.
The yield on two-year note, which is most sensitive to changes in Fed policy, touched an all-time intraday low of 0.165 percent, down 10 basis points on the day, according to Tradeweb.
Earlier in the session, investors flocked to Treasurys just two trading days after a downgrade from Standard & Poor's, producing the lowest-ever yield for a three-year sale.
The $32 billion auction drew a high yield of 0.50 percent, with 3.29 times as much bid as auctioned, a measure known as the bid-to-cover ratio. The auction marks the first sale in a three-part refunding that includes a sale of 10-year notes Wednesday and 30-year bonds Thursday.
The high demand came even on a negative day for Treasurys, which fell in price as investors ventured back into riskier assets, looking for value after Monday's global selloff in stocks, corporate bonds and industrial commodities. Treasury prices fell further despite the solid auction.
Bond dealers had been nervously awaiting the first U.S. Treasury note auction since Standard & Poor's downgraded U.S. Treasury debt.
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