Treasury Yields Mixed Despite Fed’s Rate Cut

Treasury security yields were mixed Monday despite the Federal Reserve’s half-point interest rate cut.

Shorter-term yields fell but longer-term yields rose modestly.

At the Treasury’s weekly auction of three- and six-month T-bills, rates fell to their lowest levels in nearly 40 years.

The Treasury Department sold $14 billion in three-month bills at a discount rate of 2.56%, down from 3.18% last week. An additional $12 billion was sold in six-month bills at a rate of 2.57%, down from 3.12%.

The three-month rate was the lowest since Nov. 20, 1961, when the bills sold for 2.537%. The six-month rate was the lowest since Nov. 6, 1961, when the rate was 2.554%.

The new discount rates understate the actual return to investors--2.61% for three-month bills with a $10,000 bill selling for $9,935.30 and 2.64% for a six-month bill selling for $9,870.10.

But the yield on the five-year T-note rose to 3.90% from 3.82% Friday. The 10-year T-note yield rose to 4.62% from 4.56% Friday.

Long-term Treasury yields had tumbled last week amid global fears about the economy and stock markets. But on Monday some traders focused on the idea that the boost expected in federal spending in the wake of last week’s terrorist attacks could hurt long-term bonds.

“A deterioration of the [federal] surplus and maybe a ramp up in issuance” of bonds may prompt investors to sell bonds, lifting yields further, said David Schroeder, who oversees $6 billion in bonds at American Century Investments in Mountain View, Calif.

Monday, the Treasury announced that it would not buy back some of the national debt on Thursday and Sept. 27 as originally planned. The Treasury said it would resume its regular debt repurchase operations in October.

The cancellation is “part of an effort to maintain maximum fiscal flexibility in the upcoming weeks in order to best accommodate any new or unforeseen expenditures,” a Treasury spokeswoman said.