Demand for Treasurys surges at month end

NEW YORK (CNNMoney.com) -- Treasury prices soared and yields tumbled as institutional investors plowed into the market to get their portfolios squared away before the month comes to a close.

At the end of any given month, portfolio managers will often adjust the bonds in their hedge funds or mutual funds to reflect changes in the major bond indexes they track.

But August was particularly influential since the month included a mega $74 billion auction of government debt, said Kim Rupert, a fixed income analyst with Action Economics.

Large auctions, like this month's quarterly refunding, change the composition of some of the benchmark bond indexes, and fund managers have to make adjustments accordingly, she said. This month, those adjustments called for buying more Treasurys, which was largely driving Tuesday's trading.

At the end of trading Tuesday, the benchmark 10-year note yielded 2.48%. The shorter-term 2-year note yielded 0.49%, the 5-year note yielded 1.35%, and the 30-year bond yielded 3.53%.

Throughout August, demand for Treasurys had wavered as traders battled back forth between strong corporate earnings earlier in the month and weak economic data.

"The bond market continues to ebb and flow with what we would believe was more of a crisis of economic confidence than anything else at this point," said David Katz, principal of Weiser Capital Management.

Treasury yields recently flirted with record lows, as investors continue to park their money in bonds as a safe-haven alternative to stocks.

Last week, the benchmark 10-year's yield fell to a 19-month low of 2.418% and the two-year note yielded an all-time low of 0.45%.