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Treasurys juggle new debt, stock slide

Prices end little changed as market braces for $180 billion in new issuance and factors in Wall Street's weakness.

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By Ben Rooney and Catherine Clifford, CNNMoney.com staff writers

What would happen if the government let some big banks fail?
  • It would devastate the global economy
  • It would send a strong message to the banking industry
  • It wouldn't make a difference

NEW YORK (CNNMoney.com) -- Treasury prices held in a tight range Monday as investors weighed $180 billion worth of government debt auctions later in the week with U.S. stocks at 12-year lows.

"This week, the attention is going to be focused on supply," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson.

"This is just not the end of it. We have large debt issuance as far as the eye can see," said Hurley. Therefore, investors will expect higher yields as the demand pushes prices down.

The Treasury Department is set to auction $34 billion in 3-year notes Tuesday, the first of three auctions scheduled this week. The government will auction $18 billion in 10-year notes on Wednesday and $11 billion in 30-year notes on Thursday. The government is also due to auction $119 billion worth of shorter term debt this week.

Earlier this month, the Treasury Department auctioned a record $93 billion in debt.

The auctions come as the government is set to pay $787 billion for stimulus, $700 billion for the bank bailout and trillions more in various liquidity programs. As the government floods the market with supply, investors worry that prices will continue to fall.

Meanwhile, stocks ended at fresh 12-year lows Monday, retreating after early gains. Bond prices were supported by the equity market weakness.

U.S. Treasury debt is considered among the most secure assets available. As a result, demand for Treasurys often falls when stock prices rise as investors seek out higher returns in more risky markets.

In addition to watching the new issuance auctions and the struggling stock market, Hurley said she will be listening closely to Federal Reserve Chairmen Ben Bernanke's comments Tuesday. He is set to speak at the Council on Foreign Relations in Washington about how to fix financial market regulations.

Treasury prices: The benchmark 10-year note edged up 4/32 to 99-3/32, and its yield slipped to 2.86% from 2.89% late Friday. Bond prices and yields move in opposite directions.

The 30-year bond slid 5/32 to 98-28/32 and yielded 3.56%.

The 2-year note rose less than 1/32 to 99-27/32 with a yield of 0.96%.

The 5-year note edged up 1/32 to 100 and yielded 1.88%.

Lending rates: The 3-month Libor rate rose to 1.31% from 1.29% on Friday, according to data on Bloomberg.com. The overnight Libor rate rose to 0.33% from 0.32%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.

Two key gauges reflected tighter credit conditions. The "TED" spread widened to 1.10 percentage points to 1.08 percentage points Friday. The wider the TED spread, the less willing investors are to take risks.

The Libor-OIS spread widened to 1.05 percentage points Monday from at 1.03 percentage points. The wider the spread, the less cash is available for lending. To top of page

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