(Recasts, adds quote, updates prices)
* Light dealer purchases in two-year note auction
* Treasury to sell $35 billion of five-year notes Wednesday
* Fed buys $1.15 billion of bonds due 2036-2044
By Karen Brettell
NEW YORK, March 25 Five-year U.S. Treasuries
yields were steady after the Treasury sold $32 billion new
two-year notes to solid demand on Tuesday, though light
purchases by dealers raised some concerns about how much demand
there will be for Wednesday's five-year note auction.
Short- and intermediate-dated Treasuries have been hammered
since Federal Reserve Chair Janet Yellen said last Wednesday
that the U.S. central bank could raise interest rates six months
after its current bond-buying program ends, suggesting a
potential rate hike could happen as early as spring of 2015.
Two-year note auctions are typically among the most stable
as the relative short-duration of the debt keeps a solid bid for
But dealers bought only 37.5 percent of the auction, well
below their average of 49 percent, and they bid the smallest
since December 2008, raising concerns that the prospect of
rising rates is denting some interest in the notes.
That could bode badly for Wednesday's sale of $35 billion in
five-year notes. The intermediate dated debt has seen the
largest selloff since Yellen's comments last Wednesday.
"It's possible we get a repeat performance on the light
dealer participation, but I'm not sure we will get a repeat
performance by the strong buyside to support it," said Thomas
Simons, a money market economist at Jefferies in New York. "If
we had to tilt the risks, I would say it doesn't really bode
The two-year notes sold at a high yield of 0.469 percent,
just below where they had traded before the sale. Indirect
bidders, which includes fund managers and other investors,
bought 40.9 percent of the notes, the largest percentage since
The Treasury will sell $35 billion in five-year notes on
Wednesday and $29 billion in seven-year notes on Thursday, in
addition to $13 billion in reopened two-year floating rate notes
Five-year notes yields held firm at around 1.72
percent after Tuesday's auction, down from 1.77 percent on
Monday, the highest level since Jan. 9.
Investors also pulled back on bets that the Treasuries yield
curve will continue to flatten on Tuesday as they prepared for
this week's new supply and as they waited on new economic
releases for further signs over the strength of the U.S.
"We've moved a lot since Yellen's press conference last
Wednesday. The flattener is a crowded trade; you are seeing
people taking off some positions for event risk," said Charles
Comiskey, head of Treasuries trading at Bank of Nova Scotia in
On Tuesday, the Commerce Department reported that sales of
new U.S. single-family homes hit a five-month low in February,
but private-sector data showing consumer confidence surged to a
six-year high in March suggested the economy was regaining
momentum after being held back by severe weather.
Durable goods orders for January and the Purchasers
Managers' Index for U.S. services are due on Wednesday, with
other major economic releases this week including gross domestic
product for the fourth quarter on Thursday.
Benchmark 10-year notes were last down 1/32 in
price to yield 2.73 percent, little changed from Monday, and
30-year bonds dropped 8/32 in price to yield 3.59
percent, up from 3.57 percent.
The Fed bought $1.15 billion in bonds due from 2036 to 2044
on Tuesday as part of its ongoing purchase program. It will
purchase between $2.25 billion and $2.75 billion in notes due
from 2021 to 2024 on Wednesday.
(Editing by Chizu Nomiyama and Stephen Powell)