TREASURIES-Weak 10-year debt auction knocks bonds lower

By Burton Frierson

NEW YORK, Dec 9 (Reuters) - U.S. Treasuries prices fell on Wednesday, sending 30-year yields to four-week highs after an unexpectedly poor auction of 10-year debt.

The Treasury sold $21 billion of 10-year notes that registered weak demand by all measures and is likely to bode ill for Thursday's $13 billion 30-year bond auction.

Wednesday's offering was the second of three this week that will total $74 billion and which may suffer from bad timing because many professional investors are unwilling to commit funds this close to the year-end.

The burgeoning U.S. national debt also makes it difficult to sell bonds whenever investors are hesitant, given that the auction sizes have expanded this year to pay for bailouts of the financial sector and economic stimulus measures.

'These are large sizes and you have a problem with people not wanting to take risk at the end of the year,' said Nick Kalivas, vice president of financial research at MF Global Research in Chicago.

The benchmark 10-year Treasury note was last down 10/32, yielding 3.43 percent versus 3.39 percent at Tuesday's close.

The 30-year Treasury bond was down 20/32, yielding 4.41 percent against 4.37 percent late Tuesday, though losses were well over a point immediately after the auction.

Wednesday's sale was a reopening of previously issued 10-year notes. Those sales are often erratic, but this one was especially so.

The sale had a bid-to-cover ratio of 2.62, below the average of 2.7 in the eight reopenings in the past year.

Yields were also above expectations, based on trade in the when-issued market, indicating that investors were exceptionally aggressive in bidding to drive prices lower.

Also, demand from foreign and large institutional investors was weak, based on the indirect bidder category that is seen as a proxy for them and accounted for just 35 percent of the sale.

That was well below the average of about 46 percent in the 10-year note auctions since June, which has become a new benchmark for comparisons since this category has been calculated differently since then.

(Additional Reporting by Richard Leong; Editing by Leslie Adler) ([e-mail];[phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.