Treasurys fall after auction, Greek deal hopes

NEW YORK (MarketWatch) � Treasury prices fell Tuesday, pushing yields higher, weighed by renewed confidence that Greek leaders are closer to a deal needed to receive the next tranche of their bailout and avoid a default next month.

Bonds fell further into the red after the U.S. government�s sale of 3-year notes garnered tepid demand from investors.

Yields on 10-year notes 10_YEAR , which move inversely to prices, rose 6 basis points to 1.97%, after dipping to 1.89%. A basis point is one one-hundredth of a percentage point.

Five-year note yields 5_YEAR �added 5 basis points to 0.81%, heading away from an all-time low touched last week.

Click to Play Political roadblocks to Greece deal

With a general election expected in early 2012, the political obstacles littering the path toward a debt deal could be insurmountable. (Photo: Associated Press.)

Thirty-year bond yields 30_YEAR �increased 4 basis points to 3.14%, near the highest closing level of the year.

The Treasury Department sold $32 billion in 3-year notes 3_YEAR �at a yield of 0.347%, not far above the record low of 0.334% in September.

Bidders offered to buy 3.3 times the amount of debt sold, compared to an average of 3.52 times at the last four sales of 3-year notes, according to CRT Capital Group. The amount has been the same every month since October 2010. See Treasury auction results.

Two key groups of bidders that include foreign central banks and domestic money managers purchased smaller portions of the auctions than they have a recent sales

A smaller proportion of auctions going to direct and indirect bidders is considered bad for the auction, and the government, because those buyers tend to hold onto the debt for longer.

The majority of the remaining debt sold is bought by primary dealers, who often turn around and sell newly-acquired debt into the market, pressuring prices lower.

Also helping the sale was the relatively large amount bought by the Federal Reserve, which analysts at Wrightson ICAP noted in advance was likely because the central bank has a relatively large amount of maturing debt to roll over into this week�s auctions. The Fed�s purchase is likely the largest in two years and roughly double its average portion in the last three months, according to the research firm.

The U.S. will sell 10-year notes on Wednesday and 30-year bonds the following day.

Hopes on Greece

News from Europe was also weighing on bonds, especially after reports that Greece is drafting a final agreement on budget cut to be presented to leaders of the three parties that back Prime Minister Lucas Papademos�s interim unity government. He�s expected to meeting with them Wednesday after yet-another postponement.

The deal is expected to include additional austerity measures being required by Greece�s international lenders -- mainly the European Union and International Monetary Fund -- before releasing the second tranche of a bailout package seen as required to avoid a default on Greek debt next month. See story on Greece.