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U.S. Treasury debt prices rose Tuesday, as solid demand for a record $40 billion offering of two-year notes soothed some worries of diminishing appetite for federal government debt.
Some traders had feared the indirect bid would suffer from lower Chinese demand after Treasury Secretary Timothy Geithner, in his confirmation hearing last week, said the Obama administration believed Beijing was manipulating its currency.
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Moreover, data showing rock-bottom consumer confidence and a record year-over-year drop in home prices revived safety bids for low risk government securities.
The bond market also rebounded on speculation that a week of steep losses, which raised mortgage rates and other borrowing costs, might force Federal Reserve policy-makers to approve the buying of longer-dated bonds.
The Federal Open Market Committee, the Fed's policy-setting group, began its two-day meeting this afternoon.
"I think it went well. There was strong demand and that is on a record-sized two-year note auction,'' Josh Stiles, bond strategist at IDEAglobal in New York, said of the latest two-year auction.
The overall demand for the latest two-year debt auction was the highest since October 2007.
But Stiles downplayed Tuesday's auction as a reliable gauge of current Treasurys demand. On Monday, the U.S. Treasury's $8 billion auction of 20-year inflation bonds fared poorly.
"I'm not sure that it is a massive bullish signal, I'm skeptical of that, but it definitely signals that investors feel more comfortable with the short end,'' he said.
The prospect of a flood of U.S. government debt issuance has been a huge negative factor for bonds, weighing down Treasury prices for more than a week.
The Fed and other parts of government have been scurrying to implement measures to revive economic growth, which have involved heavy borrowing to finance them.
On Wednesday, the Treasury will sell $35 billion in 70-day cash management bills, followed by $30 billion in five-year notes on Thursday.
In the cash market, the price in two-year Treasury notes was up 1/32 at 100-3/32. Their yield which moves inversely to price was 0.83 percent, down from 0.84 percent late Monday.
The benchmark 10-year Treasury note's price rose 23/32 for a yield of 2.57 percent, down from 2.65 percent late Monday.
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Data is a real-time snapshot *Data is delayed at least 15 minutes