US 3-yr note auction shows decent demand - analysts

By Chris Reese

NEW YORK, Nov 10 (Reuters) - The first new auction in over a year of U.S. 3-year Treasury notes on Monday saw decent demand, illustrating demand for shorter-dated government debt as a safe-haven investment, analysts said.

The Treasury auction of $25 billion of 3-year notes on Monday was a record large amount for the maturity. It was the first auction of the the notes since May 2007, when they were retired as better economic times allowed reduced borrowing.

The Treasury said last week that the resurrection of the 3-year note was intended to meet increased borrowing needs from government funded rescue packages for the financial industry and from reduced tax receipts in a struggling economy and financial market losses.

The bid-to-cover ratio, an indicator of demand in the sale, was 3.07, which compares with a bid-to-cover ratio of 2.39 in the final 2007 note auction.

"It was a strong auction, the cover ratio was high," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York, adding "it may speak more to the preference for short-term debt instruments than it does to (demand for) U.S. debt instruments on the whole."

Anticipation that a spate of new debt issuance will dilute the market has weighed on Treasuries' prices over the past few weeks.

Shorter-dated debt has, however, been able to maintain a bid as a lower-risk safety zone, while stocks struggle and government's around the world announce intentions to issue more debt to deal with the ongoing credit crisis.

"You still have a flight-to-safety in the Treasuries on the shorter end," said Lou Brien, market strategist with DRW Trading Group in Chicago.