Treasury Auction Is Off to a Good Start

Investors gave a hearty reception to the $10 billion of three-year notes the U.S. Treasury auctioned Tuesday, starting the first-quarter refunding on firm footing, analysts and dealers said.

But most stopped short of predicting a strong outcome for the rest of the government bond sale, meant to raise $30 billion in new money to cover the government’s borrowing needs.

Dealers said the $10 billion each of 10- and 30-year issues that will be sold today and Thursday may not find such eager buyers.

The average yield was 8.43%, up from 7.77% at the last auction on Nov. 9, 1989. It was the highest rate since three-year notes averaged 9.12% on May 9, 1989.

“The easy part of the refunding is over. We still have the tough part to bid on,” one trader said.

Japanese dealers and investors bought 30% to 35% of the $10 billion of three-year notes auctioned Tuesday, slightly more than the usual 25% to 30%, Japanese dealers said.

But the same Japanese dealers said they took the less risky three-year notes instead of 10-year notes simply because of their responsibility as primary dealers.