If you wondered why the Chinese were here. Treasury Two-Year Notes Decline After Record Sale

July 28 (Bloomberg) -- Treasury two-year notes fell for a second day as the securities drew a higher-than-forecast yield at today’s $42 billion sale, spurring concern the $115 billion of notes slated for auction this week will overwhelm demand.

The notes sold at a yield of 1.08 percent, above the 1.058 forecast in a Bloomberg News survey of bond dealers. The government is scheduled to offer $39 billion of five-year debt tomorrow and $28 billion of seven-year securities on July 30.

“It was a very weak and poor auction,” said George Goncalves, chief fixed-income rates strategist in New York at Cantor Fitzgerald LP, one of the 18 primary dealers required to bid at Treasury auctions. “Yields were not compelling enough to bring investors in today, relative to where they were in the recent auction.”

The yield on the existing 1.125 percent note maturing in June 2011 rose three basis points, or 0.03 percentage point, to 1.06 percent at 2:20 p.m. in New York, according to BGCantor Market Data. The price of the security fell 3/32, or 94 cents per $1,000 face amount, to 100 2/32.

Ten-year note yields fell three basis points, or 0.03 percentage point, to 3.69 percent. The rate touched 3.76 percent yesterday, the highest level since June 22.

Bigger Concern

Today’s two-year sale was the biggest offering of the notes since the Treasury began monthly auctions of them in the mid- 1970s.

The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 2.75, compared with an average of 2.58 at the last 10 auctions. At the last sale on June 23, the notes drew a yield of 1.151 percent. The bid-to-cover ratio was 3.19 last month, the highest since September 2007.

Indirect bidders, a class of investors that includes foreign central banks, bought 33 percent of the notes, compared with 68.7 percent at the June auction, the most in at least six years. The average at the past 10 sales is 40.3 percent.

“The bidder participation dropped even though the bid-to- cover was fairly high,” said Michael Pond, an interest-rate strategist at primary dealer Barclays Plc. “The bigger concern that this disappointing auction raises is how the other increased auctions -- the 10s and 30s -- will do in two weeks’ time?”

Geithner Assures

The U.S. had raised $1.046 trillion from debt sales this year to help finance a recovery from the recession, government data show. It may sell another $1.1 trillion by year-end, according to Barclays, as President Barack Obama borrows record amounts to stimulate the economy and service deficits.

Demand for U.S. securities was boosted earlier after Treasury Secretary Timothy Geithner assured his Chinese counterparts the U.S. will rein in a record budget deficit, seeking to ease China’s concern about the value of its Treasury holdings.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a4HDm9rKEB_8

It's getting so hard to sell our bonds that we have to beg the Chinese for help!

and what we're seeing is that the rest of the world's investor nations are having a harder and harder time pretending otherwise. Not good.

(tongue in cheek response).

...yields are too low throughout the curve.

Interest rates need to rise.