By Laura Mandaro & Nick Godt, MarketWatch
SAN FRANCISCO (MarketWatch) -- Treasurys fell slightly Wednesday, driving yields higher, as stocks rallied on hopes Congress would pass legislation to bail out U.S. car makers and the U.S. government sold $28 billion in notes at a record-low yield.
Prices of the benchmark 10-year Treasury note fell 0.13%, with yields up 4 basis points to 2.6952%. Yields, which move inversely to prices, had risen 7 basis points earlier but softened in mid-afternoon after Senate Republicans threatened to block an auto maker rescue package, taking some of the steam out of stocks.
The Dow Jones Industrial Average rose 70 points, or 0.8%, to end at 8,761, well off an earlier high of 8,879. The S&P 500 ended up 10 points, or 1.2%, to 899. Read more stocks coverage in Market Snapshot.
House Democrats said they were planning to hold a vote later Wednesday on $15 billion in bridge loans for the struggling U.S. auto industry after they reached agreement on the aid with the White House. Those plans came as Senate Republicans, at a news conference Wednesday, reiterated their opposition to a bailout and threatened to block its passage. See full story on car bailout.
"With a high probability of passing, our read is that it will temporary help the automakers, and at least partially mitigate the impact on employment -- regardless of the long-term outcome," said David Ader, U.S. government bond strategist at RBS Greenwich Capital, in written comments.
Sharp drops in employment levels and the possible bankruptcy of General Motors Corp. , among other dismal news on the economy, have sent investors running to put their money into safe assets such as Treasurys. This demand has pushed Treasury yields to historic lows.
On Wednesday, yields on the 30-year bond ) took back some recent declines, advancing 5 basis points to 3.1%.
Yields on two-year notes rose 1 basis point to 0.857%. They had risen 7 basis points earlier Wednesday. One basis point is 1/100th of a percentage point.
Another auction low
Separately, the U.S. Treasury Department said Wednesday that demand for a three-year Treasury auction pushed yields to 1.245%, a record low.
Treasury said $60.275 billion in bids were tendered for $28 billion bonds available, representing a bid-to-cover ratio of 2.15. That's lower than demand during the previous 3-year auction on Nov. 10, then the bid-to-cover reached 3.07.
The auction is part of a series of massive debt sales arranged by the U.S. government to cover its budget gap, expanded by recent efforts to rescue the struggling financial system. Treasury said Wednesday the U.S. deficit for November widened to $164.40 billion, far above the $98.24 billion reported for the same month one year ago.
On Tuesday, Treasurys got a boost after the government sold four-week Treasury bills for zero yield, meaning investors were willing to accept no yield in return for the assurance they'd simply get their principal back. See full story on zero yields.
Treasury will sell $16 billion in 10-year notes on Thursday, more than previously expected by analysts.
To complete its borrowing plans over a short period of time,, the Treasury's point-man on debt issues said the department is considering novel approaches to debt.
"We recognize that we may need to progress beyond the conventional means of the past, particularly if our borrowing needs do indeed reach the upper end of market estimates," said Karthik Ramanathan, acting assistant secretary for financial markets
Wall Street analysts have forecast that the federal budget deficit could reach almost $2 trillion this fiscal year as a large fiscal stimulus package is being considered by President-elect Barack Obama on top of the $700 billion financial market rescue plan
In economic news Wednesday, the Mortgage Bankers Association reported that U.S. mortgage applications decreased a seasonally adjusted 7.1% for the week ended Dec. 5 compared with the final week of November.
