US Treasury attracts strong demand at 3-year debt sale

NEW YORK, Sept 8 (Reuters) - The U.S. government sold $38 billion worth of three-year debt in a surprisingly well-received auction on Tuesday that may bode well for sales of longer dated bonds later this week.

Overall demand was high based on the bid-to-cover ratio of 3.02, which was well-above the average of 2.58 over the last 10 sales. In another good sign, the yield at the auction came in slightly below where it was trading in the when-issued market at the time of the sale.

Foreign and institutional investors showed decent appetite based on the indirect bidder category, which accounted for 54 percent of the sale, versus the average of 42 percent in the 10 sales.

The auction comes ahead of Treasury's 10- and 30-year bond offerings in the next two days, which along with the three-year notes are part of this week's $70 billion worth of debt sales.

Bond auctions have been watched closely this year due to the government's burgeoning budget deficit, particularly after investors questioned the longevity of the United States' prized AAA credit rating back in May.

(Reporting by Burton Frierson)