Treasurys sluggish ahead of auction

The U.S. Treasury will auction $27 billion of government debt Wednesday.

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NEW YORK (CNNMoney.com) -- Treasury prices slipped slightly Monday in anticipation of $27 billion of new government debt to be issued this week.

The benchmark 10-year note fell 5/32 to 99 11/32 and its yield rose to 3.96%. Bond prices and yields move in opposite directions.

The 2-year note declined 2/32 to 100 14/32 and yielded 2.53%. The 30-year long bond slid 10/32 to 96 24/32, with the yield rising to 4.58%.

Last week, the U.S. Treasury Department announced it will auction $17 billion in new 10-year notes and $10 billion in new 30-year bonds this Wednesday.

"It's simple a economics 101 lesson of supply and demand," said Michael Cheah, bond fund manager at AIG SunAmerica. "Soon there will be a massive supply added to the market, and investors aren't sure yet if the demand will meet it."

The Treasury's action is a response to the government's anticipated need to borrow $171 billion during the current third quarter, which would mark the second highest quarterly debt in history. With expensive wars in Afghanistan and Iraq, the Bush administration last week said it projects the 2009 federal budget deficit to hit a record $482 billion in 2009.

The Treasury also offered more than the $21 billion in notes and bonds sold in May.

Bonds slipped Monday even as stocks struggled on mixed readings on the economy.

Individual income increased by 0.1% after a revised 1.8% jump in May, according to a Commerce Department report released Monday. That matched economists expectations. The increase was due in part to the government's economic stimulus plan, which included billions of dollars in rebate checks sent to Americans in May and June.

Personal spending increased by 0.6%, topping the 0.5% increase that economists had expected. When adjusted for inflation, however, individual spending actually fell 0.2%, following a 0.3% increase in May.

The government also reported that factory orders jumped in June on higher oil prices and demand for military equipment.

The Commerce Department said orders rose by 1.7% in June, the best showing since a 1.9% rise in December.

But outplacement firm Challenger, Gray, and Christmas said the nation's employers announced 26% more planned job cuts in July when compared to June. That comes after a government report Friday that showed the economy lost 51,000 jobs.

"With the weak stock market, which is down due to the weak economy, that should be good for bonds," said Cheah. "But unless stocks plummet dramatically Monday, investors will continue to beat up on bond prices."