Investors sent a clear signal to the U.S. government on Wednesday. Pay up.

The U.S. Treasury was forced to sweeten its $19 billion sale of 10-year notes to attract investors who have grown wary of its burgeoning debt load. These notes originally sold in May cleared at 3.99 percent, the highest since August 2008.

This is the first auction of long-dated federal debt since questions over the U.S. government's credit-worthiness arose in the wake of a credit outlook downgrade of Britain by Standard & Poor's last month.

The United States and Britain are conducting similar policies to revive growth, but their tactic of borrowing heavily to finance massive stimulus and financial bailouts have raised doubts about their ability to repay their debt.

The auction was weak...There's some negative psychology, said John Spinello, chief fixed-income technical strategist with Jefferies & Co. in New York.

The auction's tail, or higher-than-expected yield the Treasury paid, deepened Wednesday's sell-off in the Treasuries market. Ten-year yield briefly touched 4 percent, a key trading support and a level not seen since October.

The rise in Treasury yields since May has rippled across other markets and increased mortgage rates and other consumer borrowing costs. This has also fanned worries an emerging economic recovery might stall, putting more pressure on the Federal Reserve and Obama Administration to do more to end the worst recession in decades.


Investors extracted 0.80 percentage point more in yield at this 10-year reopening than when the note was sold originally at the record quarterly refunding a month ago.

The added yield incentive pulled reluctant participants from the sidelines, resulting in the strongest bid 10-year auction since September 2007.

The bid-to-cover ratio, or amount of total bids to amount offered, came in at 2.62, while the share of indirect bids, which include those from foreign central banks and institutional investors, reached 34.2 percent, the highest for at a 10-year reopening in five years.

To be sure, that 10-year reopening in June 2004 was much smaller at $10 billion.

Disappointment over the 10-year sale cast a shadow over the Thursday's $11 billion reopening of a prior 30-year issue and subsequent Treasury offerings, analysts said.

One of the probable consequences is that auctions in general are going to be sloppier than what historical norms suggest that will be, and to what we have become accustomed, said Ward McCarthy, managing director at Stone & McCarthy Research Associates wrote in a research note.

(Additional reporting by Ellen Freilich)