US 3-yr Treasury note sale met with average demand

NEW YORK Dec 8 (Reuters) - The U.S. government sold $40 billion of new three-year Treasury notes on Tuesday in an auction that was characterized by analysts as garnering average to slightly above-average demand.

While the bid-to-cover ratio, a gauge of demand for the notes, was above the average for such auctions this year, the auction did have a slight "tail," which is a signal investors were pushing for yields above that of current three-year notes trading on the open market.

"I call it a fairly bid auction," said John Spinello, Treasury bond strategist at Jefferies and Co in New York.

The bid-to-cover ratio was 2.98, above the average of 2.70 in the previous 11 auctions of three-year notes this year.

However, the high yield in the auction was 1.223 percent, just above expectations and an indication of relatively aggressive bidding for higher yields and lower prices in the sale.

Indirect bidders, seen as a proxy for demand for U.S. government debt from foreign central banks, took about 61 percent of the notes, compared with an average of about 47 percent in the 11 previous three-year note sales this year.

The Treasury is issuing $74 billion of new government debt this week. It will sell $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday.

Investors are wary of any signs of waning demand for the massive doses of U.S. government debt, but analysts said demand is holding for the time being, in part because there are few other investments that are currently seen as low-risk as Treasuries. (Reporting by Emily Flitter and Chris Reese, Editing by Dan Grebler)