Treasurys mixed after more auctions

The Treasury Department auctioned off more debt at record -low yields Tuesday, proving that investors remain hungry for Treasurys as the year draws to a close.

A $22 billion auction of four-week Treasury bills drew a yield of zero for the third straight week - indicating that there were still many investors willing to earn nothing as long as their principal stays intact. There were four times as many bids as T-bills available.

Another Treasury auction on Tuesday of $28 billion in five-year Treasury notes drew a yield of 1.539 percent - the lowest auction yield ever for that type of note. The auction drew a slightly lower number of bids than in recent weeks, and a smaller percentage of bids from foreigners, but revealed still fairly decent demand, analysts said.

Kevin Giddis, managing director of fixed income at Morgan Keegan, said economic fundamentals remain very weak, and that there has been significant interest from speculators in the Treasury market.

He said, only somewhat jokingly, that the Treasury trade is "the new oil trade." Oil prices, after shooting to record highs in July, have since plunged by more than 70 percent as the global economy has slumped.

No one is sure how much lower Treasury yields could go, though, because there are many factors at play: The Treasury has been selling record amounts of debt to finance its bailout, but offsetting that effect has been the Federal Reserve offering to buy various types of debt.

In late trading, the three-month Treasury bill yield was at 0.02 percent, little changed from late Monday. The discount rate was 0.01 percent.

The two-year Treasury note was flat at 99 29/32, and its yield rose to 0.93 percent from 0.83 percent late Monday. The 10-year Treasury note was flat at 113 28/32, and its yield was unchanged at 2.18 percent. The 30-year Treasury bond rose 27/32 to 137 26/32, and its yield edged lower to 2.64 percent from 2.67 percent.

Last week, longer-term Treasury yields hit their lowest levels since the government started regularly issuing them. On Friday and Monday, those yields had rebounded.

Trading volumes in the bond markets were very low this holiday week, however, and may not provide much insight into what will happen to government debt demand in 2009, analysts said.

"I think we're at a point now that people are pretty tired," Giddis said.

The cost of three-month dollar loans between banks held steady Tuesday after recent sharp drops in the wake of last week's decision by the U.S. Federal Reserve to cut its benchmark rate to near zero percent. The interbank lending rate on three-month loans in dollars - known as the London Interbank Offered Rate, or Libor - was unchanged at 1.47 percent, according to the British Bankers' Association.