Bonds steady ahead of $40B auction
Investors wait to gauge demand for record $94 billion in auctions this week, beginning with 2-year note sale on Tuesday.
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| Click chart to view latest bond prices |
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| Click chart to view latest bond prices |
NEW YORK (CNNMoney.com) -- Treasury prices held close to even Tuesday, as investors awaited another large government debt auction.
This week, the Treasury Department plans to auction off a record $94 billion in 2-, 5- and 7-year debt, beginning with a $40 billion auction of 2-year bonds scheduled for later Tuesday.
Bonds typically trade in a tight range prior to an auction, as investors wait to see how much support the auction will muster. Auctions that garner a large amount of open interest usually signal healthy market conditions, and bonds typically rise. But if supply outweighs demand, bond prices often fall.
So far this year, the government has been successful in finding Treasury buyers. But some experts worry that there will not be enough demand to meet the large amount of supply that has yet to come to the market.
The auctions are part of the government's plan to issue between $2.7 trillion and $4.2 trillion of debt over the next two years to finance its economic and financial rescue plans. The government is set to pay $787 billion for stimulus, $700 billion for the bank bailout and trillions more in various liquidity programs.
Still, economic woes persist, driving stock prices down and bond prices up. In tumultuous times, investors typically like to hold Treasurys, which have the backing of the U.S. government.
Bonds may have room to rise Tuesday, as investors brace themselves ahead of Federal Reserve Chairman Ben Bernanke's semi-annual report on fiscal policy and the state of the economy to Congress later Tuesday.
Bonds rose Monday as investors sought safety in government-backed debt as both the Dow and the S&P 500 tumbled to 1997 levels.
Bond prices: The 2-year note edged down 2/32 to 99-27/32 and its yield rose to 0.96%. Bond prices and yields move in opposite directions.
The price of the 10-year note ticked up 6/32 to 100-4/32 and its yield was 2.74%, down from 2.78% on Monday.
The 30-year bond rose 1-3/32 to 100-30/32. Its yield fell to 3.44% from 3.52%.
The yield on the 3-month note stood at 0.3%, up from 0.28% on Monday. Demand for the shorter-term note is seen as a gauge of investor confidence.
Lending rates: The 3-month Libor rate remained unchanged at 1.25%, and the overnight Libor rate held even at 0.27%. Libor, the London Interbank Offered Rate, is a daily average of rates that 16 banks charge each other to lend money in London.
Two credit market gauges showed an uptick. The TED spread fell to 0.95 percentage point, down slightly from 0.97 Monday. The smaller the TED spread, the more willing investors are to take risks.
The Libor-OIS spread sank to held even at 1.03 percentage points, which is still much higher than the 0.11 point average before the credit crisis began in September. The bigger the spread, the less cash is available for banks to lend. 
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