By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices fell on Monday, pushing 10-year yields to a fresh four-month high, as traders expect low volume could be a problem as the government kicks off $118 billion in auctions this week.
First up are $40 billion in 2-year notes an amount that matches last month's sale as the highest on record.
"Add to this the holiday-shortened trading week and limited liquidity and its difficult to be optimistic on the auctions," said strategists at CRT Capital Group.
Benchmark 10-year yields (UST10Y 3.79, +0.04, +1.15%) rose 3 basis points to 3.84%, the highest level since early August. A basis point is 0.015 and yields move inversely to prices.
Yields on the current 2-year note (UST2YR 0.95, +0.03, +2.71%) , maturing in November 2011, inched up 1 basis point to 0.99%, after rising above 1% earlier. The notes haven't closed above 1% since Oct. 26.
Bids will be accepted until 1 p.m. Eastern time.
In the last six monthly auctions of 2-year notes, bidders offered an average of 3.11 times the amount of debt sold, according to RBS Securities.
Indirect bidders, a group that includes foreign central banks, bought an average of 47.5%. Direct bidders, which include managers buying for their own funds, have taken an additional 9%, on average.
The proportion of auctions going to direct bidders has risen notably in recent months, probably in part because of a change in June to how bids were tallied. The amount going to indirect and direct bidders is important because the more they buy, the less that primary dealers take and have to resell into the market, putting pressure on prices.
Still, with the yields of December 2-year notes to be issued hovering above 1%, investors may find the levels reasonably attractive.
"There is nothing like rising prices to shake the market from a slumber and bring in the buyers. Bill O'Donnell, head of Treasury strategy at RBS. "There is a 'risk' that a trickle of buying could quickly develop into a torrent once the cash begins to flow into the market."
On Tuesday, the government will sell $42 billion in 5-year notes (UST5YR 2.53, +0.05, +2.10%) , followed by $32 billion in 7-year notes.
No U.S. economic reports are on the calendar for Monday.
