NEW YORK, USA – INTEREST rates rose in the bond market yesterday following lackluster demand at a government auction of two-year notes.

The weak showing for the US$44 billion sale is raising concerns that demand will falter for government debt. That would hurt prices and drive up yields, which move in opposite directions.

If fewer investors seek Treasurys, the government will be forced to pay higher interest rates to attract buyers. Most recent auctions have been strong, however.

The auction’s bid-to-cover ratio, which is a measure of demand, was three per cent. That was below the 3.33 seen at an auction last month and the 3.13 ratio at an auction in January.

The yield on the two-year note that matures in February 2012 rose to 0.99 per cent in late trading from 0.98 per cent Monday. Its price fell less than 1/32 to 99 25/32.

The sale was part of the US$118 billion in debt the government is slated to auction this week.

The yield on the benchmark 10-year Treasury note maturing in February 2020 rose to 3.69 per cent from 3.66 per cent Monday. Its price fell 7/32 to 99 14/32.

The yield on 10-year note is linked to interest rates on consumer loans. It has fluctuated between about 3.55 per cent to 3.80 per cent for the past two months.

Another advance in stocks also eased demand for safety holdings like bonds. The Dow Jones industrial average rose 103 points as expectations grew that the stock market’s run would continue. The Dow has risen 10 of the past 11 days.

In other trading, the yield on 30-year bond that matures in February 2040 rose to 4.61 per cent from 4.58 per cent. The price fell 21/32 to 100 6/32.

The yield on the three-month T-bill that matures June 17 fell to 0.12 per cent from 0.14 per cent Monday. Its discount rate stood at 0.13 per cent.