NEW YORK (MarketWatch) -- Treasurys prices rose slightly Monday as stocks backpedaled on earlier gains and the government sold a record $25 billion in three-year notes.
Two-year note yields declined 3 basis points, or 0.03%, to 1.29%. Bond prices and yields move in opposite directions.
The three-year notes sold at a yield of 1.80%, the first sale of the security since May 2007 and part the government's quarterly refunding this week.
Bids were due earlier than usual because bond trading is expected to be suspended earlier than usual Monday and remain on hold Tuesday in observance of Veterans Day.
The auction was the largest amount of three-year notes sold at one time since at least 1995.
Bidders offered $3.07 for every dollar available. At the last auction of the securities, $14 billion more than a year ago, the so-called bid-to-cover was $2.39.
The auction was met with strong demand from indirect bidders, a class of investors that includes foreign central banks, who took a high amount of the sale, David Ader, head of government bond strategy at RBS Greenwich Capital, wrote in an email.
The three-year notes were discontinued between 1998 and 2003, when the country's fiscal situation was better. Halting the issuance of a specific maturity tends to makes it less liquid, and therefore less attractive for investors when issuance resumes.
"Supply in the three-year should certainly be an issue for the market, as will be the entire refunding this week," said Thomas di Galoma, head of U.S. government-bond trading at Jefferies & Co.
The auction was the first of three note and bond sales scheduled this week, putting upward pressure on yields. Also, $54 billion in three-month and six-month bills were sold Monday. On Wednesday, $34 billion in four-week bills will be auctioned.
The securities have typically been sold quarterly, but the government plans to now issue them monthly. It's one of several changes the Treasury has made to its debt-auction schedule so that it can issue more debt to pay for the myriad of programs the department and the Federal Reserve have initiated recently to stabilize financial markets.
The Treasury Department also plans to sell a record $20 billion in 10-year notes on Wednesday as well as $10 billion in 30-year bonds the following day, making it the largest quarterly refunding package seen since February 2004, according to Wrightson ICAP.
Treasurys also played off the restructuring of the government's plan to bail out American International Group announced earlier Monday. See full story.
Global and U.S. equity markets initially traded positively after China announced a $585 billion package to stimulate its economy.
