By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices gained some ground Tuesday, pushing yields lower, after yields on benchmark securities reached the highest levels in almost two months and attracted buyers.
The shift in positions came ahead of the government's sale of a record amount of 2-year notes, the second of four auctions of notes and inflation-indexed debt this week that will total $123 billion.
Ten-year note yields /quotes/comstock/31*!ust10y (UST10Y 3.55, +0.06, +1.63%) declined 2 basis points, or 0.02%, to 3.55%. The yield had risen the previous four days and closed Monday at 3.56%, the first time above 3.50% since Aug. 21.
Yields on 2-year securities /quotes/comstock/31*!ust2yr (UST2YR 1.02, +0.01, +1.19%) slipped 2 basis points to 1.01%, after also closing Monday at the highest yield since late August.
"We've crossed through levels that had proved supportive after the last refunding," when the government last sold new 10-year notes, said strategists at CRT Capital Group.
The government will accept bids on $44 billion in 2-year notes until 1 p.m. Eastern time.
"The recent back-up in rates will no doubt help today's auction," strategists at RBS Securities said in a research note. Fund managers and other investors have told the firm they have lots of cash to invest since the Treasury Department ended one of its short-term bill sale programs.
"There should be plenty of cash around for today's auction anywhere above 1.00% and I'd reckon that today's 2-year auction will be the best of the coming three," RBS said.
At the last six monthly sales of 2-year notes, bidders offered an average of $2.92 for every $1 being sold, according to RBS. Indirect bidders, a group of investors that includes foreign central banks, bought 475 on average in the same period.
The government will also sell 5-year /quotes/comstock/31*!ust5yr (UST5YR 2.48, +0.04, +1.51%) and 7-year notes this week.
On Monday, the Treasury's inflation-linked debt sale drew strong demand but the broader market sold off. Demand for Treasury Inflation Protected Securities, or TIPS, is rarely extrapolated to an indication of demand for regular Treasurys.
Also on Tuesday, the market will digest data on home prices and consumer confidence.
