U.S. Treasury bonds fell on Tuesday after the Federal Reserve announced a $200 billion plan to boost lending to banks in a move to thaw frozen credit markets.

The Fed bid to inject liquidity into financial markets would allow financial institutions to use collateral linked to mortgage loans to back the loans. The move sent the dollar sharply higher.

After the news, investors fled from the relative safety of Treasury bonds to more risky investments such as stocks and commodities. The Fed's move was taken together with action by other central banks to provide more funds into the banking system.

Two-year Treasury notes fell 16/32 in price to yield 1.748. Ten-year notes dropped 1 4/32 in price to yield 3.600.

Investors are betting that the Federal Reserve will cut its benchmark lending rate on March 18 when members of the Federal Open Market Committee meet.